Impact of Environmental Dynamics on Economic Evolution: Uncertainty, Risk Aversion, and Policy
AbstractThe general question of how environmental dynamics affect the behavioral interaction in an evolutionary economy is considered. To this end, a basic model of a dynamic multi-sector economy is developed where the evolution of investment strategies depends on the diversity of investment strategies, social connectivity and relative contribution of sector specific investments to production. Four types of environmental dynamics are examined that differ in how gradual and how frequent environmental change occurs. Numerical analysis shows how the socially optimal level of diversity increases with the frequency and rapidity of the changes. When there is uncertainty about which type of environmental dynamics will prevail, the socially optimal level of diversity increases with the degree of risk aversion of the policy maker or the society.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 13834.
Date of creation: 2008
Date of revision:
evolutionary economics; agent-based economics; dynamic environments; public policies; risk aversion; uncertainty;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Institutional; Evolutionary
- Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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