Book contents
- Frontmatter
- Contents
- Figures
- Tables
- Preface
- Acknowledgements
- Part I The State of Knowledge and its use in Environmental Economics
- Part II A Positive Theory for Complexity Economics
- 5 Concepts of Complexity for Economics
- 6 Fundamental Uncertainty
- 7 Micro-foundations for Consumer Theory
- 8 Micro-foundations for an Economic Theory of Innovation
- 9 Empirical Foundations for the Nature of Money
- 10 Micro-foundations for Credit Creation and the Business Cycle
- 11 A Macroeconomic Model for Growth and Creative Destruction
- Part III Applied Complexity Economics for Environmental Governance
- References
- Index
7 - Micro-foundations for Consumer Theory
from Part II - A Positive Theory for Complexity Economics
Published online by Cambridge University Press: 03 November 2022
- Frontmatter
- Contents
- Figures
- Tables
- Preface
- Acknowledgements
- Part I The State of Knowledge and its use in Environmental Economics
- Part II A Positive Theory for Complexity Economics
- 5 Concepts of Complexity for Economics
- 6 Fundamental Uncertainty
- 7 Micro-foundations for Consumer Theory
- 8 Micro-foundations for an Economic Theory of Innovation
- 9 Empirical Foundations for the Nature of Money
- 10 Micro-foundations for Credit Creation and the Business Cycle
- 11 A Macroeconomic Model for Growth and Creative Destruction
- Part III Applied Complexity Economics for Environmental Governance
- References
- Index
Summary
In standard theories of innovation diffusion, agents have full knowledge of markets and products from birth. However, it is known from empirical research that this process takes time and is self-reinforcing. Here, it is shown that if one takes a standard model of innovation diffusion with utility-maximising agents but modified to assume that heterogenous agents start in life with no knowledge but learn through peers about the existence of products, one observes the emergence of clusters of agents with relatively homogenous sets of knowledge within the clusters, but knowledge that is heterogenous across the clusters. Fads and fashions arise, transitivity in aggregate preferences is lost, and non-equilibrium path-dependent diffusion dynamics emerge. Aggregate utility cannot be optimised anymore. Instead, an evolutionary theory of the diffusion of innovations arises naturally.
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- Information
- Complexity Economics for Environmental Governance , pp. 157 - 190Publisher: Cambridge University PressPrint publication year: 2022