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Impact of Environmental Dynamics on Economic Evolution: Uncertainty, Risk Aversion, and Policy

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Author Info
Nannen, Volker
van den Bergh, Jeroen C. J. M.
Eiben, A. E.

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Abstract

The 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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File URL: http://mpra.ub.uni-muenchen.de/13834/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13834.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:13834

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Related research
Keywords: 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 - - - Innovation and Invention: Processes and Incentives

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  1. Oded Galor & Omer Moav, 2002. "Natural Selection And The Origin Of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1133-1191, November. [Downloadable!] (restricted)
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  2. Sethi, Rajiv & Somanathan, E, 1996. "The Evolution of Social Norms in Common Property Resource Use," American Economic Review, American Economic Association, vol. 86(4), pages 766-88, September. [Downloadable!] (restricted)
  3. Elinor Ostrom, 2000. "Collective Action and the Evolution of Social Norms," Journal of Economic Perspectives, American Economic Association, vol. 14(3), pages 137-158, Summer. [Downloadable!] (restricted)
  4. Alistair Munro, 1997. "Economics and biological evolution," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(4), pages 429-449, June. [Downloadable!] (restricted)
  5. Theodore C. Bergstrom, 2002. "Evolution of Social Behavior: Individual and Group Selection," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 67-88, Spring. [Downloadable!] (restricted)
  6. Joëlle Noailly, 2008. "Coevolution of economic and ecological systems," Journal of Evolutionary Economics, Springer, vol. 18(1), pages 1-29, February. [Downloadable!] (restricted)
  7. Joïlle Noailly & Jeroen C.J.M. van den Bergh & Cees A. Withagen, 2003. "Evolution of harvesting strategies: replicator and resource dynamics," Journal of Evolutionary Economics, Springer, vol. 13(2), pages 183-200, 04. [Downloadable!] (restricted)
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