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A Darwinian theory of transformation pressure – the stimuli of negative shocks for productivity and renewal in established firms

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Abstract

The theory of transformation pressure maintains that central actors in established firms will be more productive when experiencing an actual fall in profits. Actors fearing that the survival of the firm is at stake will then become more alert, calculating and creative favoring a transformation. The neo-Schumpeterians follow Schumpeter by largely ignoring the importance of negative driving forces for innovations and the productivity performance of firms. In the neoclassical Schumpeterian literature stronger competition and also lower product demand may induce innovations and productivity increases in established firm. But this literature neglects the underlying psychological mechanism. The ideas in the theory of transformation pressure can easily be incorporated into a Darwinian framework emphasizing basic human drives, the struggle for existence and the adaptation to new external circumstances. The results from tests of the theory of transformation pressure are ambiguous. An experiment confirmed that firms are governed by bounded rationally but only partly that they will upgrade their growth strategy in a profit recession. There are arguments in both industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressures and good opportunities.

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  • Erixon, Lennart, 2013. "A Darwinian theory of transformation pressure – the stimuli of negative shocks for productivity and renewal in established firms," Research Papers in Economics 2013:4, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:2013_0004
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    More about this item

    Keywords

    transformation pressure; bounded rationality; creative destruction; negative driving forces; productivity growth; innovations; neuroscience; stress; economic psychology; universal Darwinism;

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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