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Optimal Search on a Technology Landscape

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Author Info
Stuart Kauffman
Jose Lobo
William G. Macready
Abstract

Technological change at the firm level has commonly been modeled as random sampling from a fixed distribution o f possibilities. Such models, however, typically ignore empirically important aspects of the firm's search process, notably the observation that the present state of the firm guides future innovation. In this paper we explicitly treat this apsect of the firm's search for technological improvements by introducing a "technology landscape" into an otherwise standard dynamic programming setting where the optimal strategy is to assign a reservation price to each possible technology. Search is modeled as movement, constrained by the cost of innovation, over the technology landscape. Simulations are presented on a stylized technology landscape while analytic results are derived using landscapes that are similar to Markov random fields. We find that early in the search for technological improvements, if the inital position is poor or average, it is optimal to search far away on the technology landscape; but as the firm succeeds in finding technological improvements it is optimal to confine search to a local region of the landscape. We obtain the result that there are diminishing returns to search without having to make the assumption that the firm's repeated draws from the search space are independent and identically distributed.

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Paper provided by Santa Fe Institute in its series Research in Economics with number 98-10-091e.

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Date of creation: Oct 1998
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Handle: RePEc:wop:safire:98-10-091e

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Related research
Keywords: Combinatorial optimization; optimal search; production recipes; search distance; technology landscape;

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References listed on IDEAS
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    Other versions:
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  8. Cohen, Wesley M & Levinthal, Daniel A, 1989. "Innovation and Learning: The Two Faces of R&D," Economic Journal, Royal Economic Society, vol. 99(397), pages 569-96, September. [Downloadable!] (restricted)
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  11. Evenson, Robert E & Kislev, Yoav, 1976. "A Stochastic Model of Applied Research," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 265-81, April. [Downloadable!] (restricted)
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  17. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October. [Downloadable!] (restricted)
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  22. Kennedy, Peter W., 1994. "Information processing and organization design," Journal of Economic Behavior & Organization, Elsevier, vol. 25(1), pages 37-51, September. [Downloadable!] (restricted)
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  25. Phil Auerswald & Jose Lobo & Karl Shell, . "A Microeconomic Theory of Learning-by-Doing: An Application of Nascent Technology Approach," Computing in Economics and Finance 1997 128, Society for Computational Economics. [Downloadable!]
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