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

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

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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File URL: http://mpra.ub.uni-muenchen.de/43673/
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Bibliographic 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;

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  1. 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.
  2. Galor, Oded & Moav, Omer, 2000. "Natural Selection and the Origin of Economic Growth," Arbetsrapport 2000:5, Institute for Futures Studies.
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  8. Smith, Jeffrey, 2002. "Introduction," Labour Economics, Elsevier, vol. 9(2), pages 137-141, April.
  9. Joëlle Noailly, 2008. "Coevolution of economic and ecological systems," Journal of Evolutionary Economics, Springer, vol. 18(1), pages 1-29, February.
  10. Mirowski, Philip, 2007. "Markets come to bits: Evolution, computation and markomata in economic science," Journal of Economic Behavior & Organization, Elsevier, vol. 63(2), pages 209-242, June.
  11. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, January.
  12. Henrich, Joseph, 2004. "Cultural group selection, coevolutionary processes and large-scale cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 53(1), pages 3-35, January.
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