Organisations, Innovation and Complexity: New Perspectives on the Knowledge Economy

University of Manchester
9-10th September 2004

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The Allocation of Complexity

Jason Potts

j.potts@economics.uq.edu.au

School of Economics & ACCS,
University of Queensland, Australia

Abstract

Much thought and effort has gone into the design of new conceptual frameworks and theoretical tools for the analysis of evolving, self-transforming economic systems; some of which I have contributed to, as have all of us here. Nevertheless, why not follow Marshall? In this paper, we present a novel yet not unfamiliar way of analyzing the complexity of self-organization in economic systems. We propose a comparative static framework for analysis of the allocation of rules between different classes of carrier. We start by assuming complexity (i.e. that evolutionary forces maintain complexity in open systems) and then analyzing the distribution of state-space equilibria under different relative costs (prices) of embedding rule-complexity in different systems (such as in agents, or in institutions). The outcome is an allocation of complexity. Changes in relative prices, as caused by technological, institutional or financial innovation, say, will effect the position of the equilibria in carrier-space. We may therefore study how changes in the cost of embedding rules conditions the evolution of the complexity of an economic system. The upshot is a set of simple tools for arraying economic forces over the different dimensions of economic evolution in order to study the effects of relative price changes on the dynamics of economic evolution. The use of complexity as a conservational concept (and its derivative, a convexity argument) may prove expedient for further theoretical and conceptual development of economic analysis. The generic graphical model, and a possible bridge between neoclassical and complexity economics, looks as such:

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