WHAT ECONOMISTS CAN LEARN FROM EVOLUTIONARY THEORISTS

(A talk given to the European Association for Evolutionary Political Economy)

Paul Krugman 
Nov. 1996

Good morning. I am both honored and a bit nervous to be speaking to a group devoted to the idea of evolutionary political economy. As you probably know, I am not exactly an evolutionary economist. I like to think that I am more open-minded about alternative approaches to economics than most, but I am basically a maximization-and-equilibrium kind of guy. Indeed, I am quite fanatical about defending the relevance of standard economic models in many situations.

Why, then, am I here? Well, partly because my research work has taken me to some of the edges of the neoclassical paradigm. When you are concerned, as I have been, with situations in which increasing returns are crucial, you must drop the assumption of perfect competition; you are also forced to abandon the belief that market outcomes are necessarily optimal, or indeed that the market can be said to maximize anything. You can still believe in maximizing individuals and some kind of equilibrium, but the complexity of the situations in which your imaginary agents find themselves often obliges you - and presumably them - to represent their behavior by some kind of ad hoc rule rather than as the outcome of a carefully specified maximum problem. And you are often driven by sheer force of modeling necessity to think of the economy as having at least vaguely "evolutionary" dynamics, in which initial conditions and accidents along the way may determine where you end up. Some of you may have read my work on economic geography; I only found out after I had worked on the models for some time that I was using "replicator dynamics" to discuss the problem of economic change...(click to link full article)

excerpts from http://web.mit.edu/krugman/www/evolute.html