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Government intervention modeling in microeconomic company market evolution

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  • Micha{l} Chorowski
  • Ryszard Kutner

Abstract

Modern technology and innovations are becoming more crucial than ever for the survival of companies in the market. Therefore, it is significant both from theoretical and practical points of view to understand how governments can influence technology growth and innovation diffusion (TGID) processes. We propose a simple but essential extension of Ausloos-Clippe-P\c{e}kalski and related Cichy numerical models of the TGID in the market. Both models are inspired by the nonlinear non-equilibrium statistical physics. Our extension involves a parameter describing the probability of government intervention in the TGID process in the company market. We show, using Monte Carlo simulations, the effects interventionism can have on the companies' market, depending on the segment of firms that are supported. The high intervention probability can result, paradoxically, in the destabilization of the market development. It lowers the market's technology level in the long-time limit compared to markets with a lower intervention parameter. We found that the intervention in the technologically weak and strong segments of the company market does not substantially influence the market dynamics, compared to the intervention helping the middle-level companies. However, this is still a simple model which can be extended further and made more realistic by including other factors. Namely, the cost and risk of innovation or limited government resources and capabilities to support companies.

Suggested Citation

  • Micha{l} Chorowski & Ryszard Kutner, 2020. "Government intervention modeling in microeconomic company market evolution," Papers 2007.06451, arXiv.org.
    • Handle: RePEc:arx:papers:2007.06451
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    References listed on IDEAS

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    1. Wang, Jue, 2018. "Innovation and government intervention: A comparison of Singapore and Hong Kong," Research Policy, Elsevier, vol. 47(2), pages 399-412.
    2. Ausloos, M & Clippe, P & Pekalski, A, 2004. "Model of macroeconomic evolution in stable regionally dependent economic fields," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 337(1), pages 269-287.
    3. Krzysztof Cichy, 2009. "Human Capital and Technological Progress as the Determinants of Economic Growth," NBP Working Papers 60, Narodowy Bank Polski.
    4. Datta-Chaudhuri, Mrinal, 1990. "Market Failure and Government Failure," Journal of Economic Perspectives, American Economic Association, vol. 4(3), pages 25-39, Summer.
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    1. Chorowski, Michał & Kutner, Ryszard, 2021. "Critical phenomena in the market of competing firms induced by state interventionism," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 578(C).

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