Social and Economic Change as a Complex Dynamical System (SEC) Session 1
Time and Date: 10:00 - 12:30 on 20th Sep 2016
Room: G - Blauwe kamer
Chair: Matthieu Cristelli
| Percolation in complex networks and applications in innovation economics
Abstract: In my talk, I will go into the standard model of percolation and how this model can be used to analyse innovation diffusion processes through word-of-mouth. We will do so distinguishing different network topologies (random, small-world, regular), between simple versus complex propagation, and between different preference distribution reflecting economic inequality levels. This work is based on collaborations with dr. Elena Mas Tur (Eindhoven University of Technology) and dr. Paolo Zeppini (Bath University).?
| The development pathways of nations: the heterogeneous dynamics of economic complexity
Abstract: Recent results of a new branch - Economic Complexity - set basis for a framework to interpret and explain the extreme heterogeneity of the dynamics of development of nations. The idea behind the concept of Economic Complexity is to use the output of a country to determine how fertile the economic system is. In other words, to go from the observable exported products to a synthetic estimate (fitness) of the level of endowments present in the country, that automatically takes their relationships into account. We will discuss the main results and achievements of Economic Complexity. As an example of them, the metrics for country intangibles allows for quantifying the hidden growth potential of countries by comparing it with money-based figures such as the GDP per capita. The analysis of the economic evolution in the plane defined by fitness and GDP per capita pinpoints strongly heterogeneous patterns of evolution and allows to cast economic forecast into the framework of forecasting the evolution of a dynamical system as in the case of weather dynamics. We also observe a strong heterogeneity in the predictability of the economic dynamics. In such a framework, the usual tool used in Economics (i.e regressions) is no more the appropriate one to deal with such a heterogeneous scenario and new concepts, borrowed from dynamical systems theory, are needed. We will also discuss how it is possible to track and define trajectories of growth and development at single product level by defining a suitable network, named Product Progression, linking products on a technological hierarchical basis.?
| The Complex Roots of Economic Liberalism
Abstract: Economic theory has developed in such a way as to be consistent with the socio-political liberalism which became dominant after the Enlightement. The doctrine of "laissez faire", and the argument that leaving people insofar as possible to their own devices would lead to a socially desirable state was based on the conviction that an Invisible Hand would lead society to such a state. As economic theory developed it was never able to give a formal justification for this assertion. It was claimed that this would happen but the discipline was confined to study the welfare properties of equilibrium states without explaining how they were attained. Thus crises were said to be generated by exogenous shocks and did not come from within the system. Changing our two hundred year old paradigm to thinking of the economy as a complex adaptive system allows us to consider economies out of equilibrium and the fact that they may self organise into states which are far from optimal. Such systems with their feedbacks are unpredictable and policy measures can generate unexpected consequences. Accepting this may lead to more realistic and more modest economic theory
| Supply Chain Disruptions: Evidence from the Great East Japan Earthquake
Abstract: This paper examines whether propagation of idiosyncratic, firm-level shocks through input-output linkages can lead to sizable fluctuations at the aggregate level. Using a large-scale dataset on supply chain linkages among Japanese firms together with information on firm-level exposures to a large, but localized, natural-disaster?the Great East Japan Earthquake in 2011?we quantify the earthquake?s impact on firms that were (directly or indirectly) linked to affected firms. We find that having a supplier in the earthquake-hit region led to a 3% loss in terms of sales growth compared to firms with no such suppliers. We also find evidence for smaller but nevertheless significant upstream propagation from affected firms to their suppliers. Furthermore, we show that these losses do not remain confined to the disrupted firms? immediate customers and suppliers. Rather, firms that were only indirectly related to the firms in the affected areas (such as their customers? customers) were also negatively impacted. Even though our results suggest that such cascade effects decay with supply chain distance, the number of firms affected is large enough for this localized disruption to have a meaningful macroeconomic impact: the propagation of the earthquake shock over input-output linkages led to a 1% drop in Japan?s aggregate output in the year following the earthquake.
| Portfolios of Technology Investments
Abstract: We study how to optimally schedule production in technologies following experience curves under uncertainty to meet a known demand schedule. Experience effects encourage specialization but in an uncertain world a risk-averse decision maker may prefer to diversify. This is relevant for planning investment strategies for the transition to a sustainable energy system. We develop a stochastic model and characterize the optimal degree of diversification as a function of relative progress rates, initial conditions, time horizon, discount rate and variability. Due to feedback effects from learning, solutions depend sensitively on underlying model parameters, and we observe instantaneous switching between local optimums of the objective function. This differs sharply from portfolios of standard financial assets. Technological lock-in may be characterised in this framework. When the planning horizon is long, we find that it is optimal to specialize more in the short term than the long term, where uncertainty dominates the utility function.