The Microeconomics of Complex Economies: Evolutionary, Institutional, Neoclassical, and Complexity Perspectives (Complete Instructor's Resources with Solution Manual) (Solutions)

__The Microeconomics of Complex Economies__ uses game theory, modeling approaches, formal techniques, and computer simulations to teach useful, accessible approaches to real modern economies. It covers topics of information and innovation, including national and regional systems of innovation; clustered and networked firms; and open-source/open-innovation production and use. Its final chapter on policy perspectives and decisions confirms the value of the toolset. Written so chapters can be used independently, the book includes an introduction to computer simulation and pedagogical supplements. Its formal, accessible treatment of complexity goes beyond the scopes of neoclassical and mainstream economics. The highly interdependent economy of the 21st century demands a reconsideration of economic theories. * Describes the usefulness of complex heterodox economics * Emphasizes divergences and convergences with neoclassical economic theories and perspectives * Fits easily into courses on intermediate microeconomics, industrial organization, and games through self-contained chapters Front Cover......Page 1 The Microeconomics of Complex Economies......Page 4 Copyright Page......Page 5 Dedication......Page 6 Contents......Page 8 Lingering Crises, Increased Socioeconomic Volatility, and the Struggle for Answers......Page 10 Noncomplex Advice for Complex Problems?......Page 11 What Is Neoclassical “Mainstream” Economics—And Does It Still Exist?......Page 12 A “Ruling Mainstream” and a “Pluralist” Approach to Teaching......Page 13 The Ideal “Market,” the Real-World Market, Embedded in Its Counter-Principles, and a Mixture of Allocation Mechanisms......Page 14 Nobel Prizes for Such a Microperspective......Page 15 A New Teaching: Redrafting and Recrafting Microeconomics.........Page 16 Guidelines of the Textbook......Page 17 Some Points in Particular......Page 18 Its Competition......Page 20 References......Page 21 Acknowledgments......Page 24 About the Authors......Page 26 Beyond the “Economics of the x”: A Different Task, a Different Style......Page 28 Sample Syllabi: Roadmaps for Teaching in Different Formats......Page 29 Reference......Page 30 List of Abbreviations......Page 32 I: Basics of the Interdependent Economy and Its Processes......Page 34 1 Introduction to the Microeconomics of Complex Economies......Page 36 1.2.2 Rationality and Optimality......Page 38 1.2.5 Coordination Problems......Page 39 1.3.2 The Fallacy-of-Aggregation World View......Page 40 1.4.1 Uncertainty and Expectations......Page 41 1.4.3 Bounded Rationality......Page 42 1.5.2 Complexity and Cumulative Process......Page 43 1.6.4 Enabling Action......Page 44 1.7.1 Recognizing Different Problem Structures......Page 45 1.7.3 Sacrifice and Sanction, Repeated Interaction and Time Horizon......Page 46 1.7.6 Incomplete Contracts, Reciprocity, and Trust......Page 47 1.8.1 Types of Goods: Private and Collective......Page 48 1.8.2 Decision Situations and Rules and Institutions as Systems of Externalities......Page 49 1.8.5 A Variety of Institutional Systems Including “Markets” as Sets of Institutions......Page 50 1.9.2 Ceremonial Value and Motivation: Power and Status......Page 51 1.10.1 Assessing Different Complex Decision Situations......Page 52 1.10.4 Reducing Uncertainty in the Corporate World Through Power and Control......Page 53 1.10.6 Integrating Institutional Change and Petrifaction......Page 54 Further Reading......Page 55 Further Reading—Online......Page 56 2.1 Introduction......Page 58 2.2 Understanding a Strategic Game......Page 59 2.3 The Invisible Hand and the Fallacy of Aggregation Again......Page 60 2.5.1 Dominance......Page 62 2.5.2 Best Answers......Page 63 2.7 Summary......Page 64 Exercises......Page 65 3 Problem Structures and Processes in Complex Economies......Page 66 3.1.1 An Invisible Hand at Work: A Social Optimum Structure......Page 67 3.1.3 Another Coordination Problem: Assurance......Page 68 3.1.4 Assurance Extended: Stag Hunt and the Problems of Trust and Signaling......Page 69 3.1.5 Coordination with Asymmetric Interests: Battle of the Sexes......Page 70 3.1.6 An Anti-Coordination Problem: Hawk-Dove......Page 71 3.1.7 A Social Dilemma Problem, and Public Goods and Commons......Page 72 3.2 Solutions to Social Dilemma Problems......Page 73 3.2.1 Transformation of the Problem Structure: Supergames and Single-Shot Solution......Page 75 3.2.2 The Population Perspective......Page 81 3.2.3 Agency Mechanisms......Page 82 3.2.4 Institutionalization and Habituation of Cooperative Behavior: Rationally Rule-Behaving......Page 84 Exercises......Page 87 4 Approaching Real-World Interdependence and Complexity: Empirical Phenomena in the Global Economy......Page 90 4.1 Introduction......Page 92 4.2.1 The “Organized Capitalism Plus Welfare State and Proactive Policies,” 1930s Through 1970s: A Shaping Role for Social .........Page 93 Politico-Economic Paradigm Change, the Era of “Neoliberal” Deregulation, and its Outcomes......Page 95 Deregulated Markets Are Not a General Cure—on Relevant Real-World Modeling......Page 97 The Global Deregulated Economy in an “Institutional Disequilibrium”?......Page 98 A System of Externalities, Entailing “Inappropriability”......Page 99 The Necessity of Technological Compatibility and Behavioral Coordination and Cooperation......Page 100 An Example: Interaction with Service Providers and Customers......Page 101 Close-to-Zero Marginal Costs of Information Reproduction......Page 102 Network Technologies and Network Externalities......Page 103 A Game-Theoretic Example: A Three-Agent-Two-Technology Coordination Problem......Page 104 “Basic Information” as a Collective Good: Sharing Knowledge in Fragmented VACs and on Network-Based Technologies......Page 106 “Inappropriability” and “Open Source” as a Potential New General Economic Principle and as a Business Model......Page 107 The Importance of Path Dependence and Cumulative Process in the Real World: The Case of Microsoft and the Market for PC Ope.........Page 108 4.2.6 Interoperability—Standardization of Technologies and Behaviors, and the Roles of Collective Rationality and Public Po.........Page 110 “Power-Ization”: Hierarchy, Power, Collusion—Increasing Control to Compensate for Increased Turbulence......Page 111 Hub&Spoke Networks......Page 112 A Two-Stage Conception of Emergence......Page 113 Clusters Tend to Outgrow the Market......Page 114 4.3.3 Taking Stock......Page 115 4.4.1 A More Integrative Picture......Page 117 4.4.2 What Lies Ahead? The Following Parts of the Book......Page 119 Chapter References......Page 120 Exercises......Page 124 II: Markets: General-Equilibrium Theory and Real-World Market Structures......Page 128 5 The Ideal Neoclassical Market and General Equilibrium......Page 130 5.1 Introduction: The Neoclassical Paradigm and Research Program......Page 131 5.2.1 Preferences......Page 133 5.2.2 Utility, Maximization, and Demand......Page 135 An Illustration......Page 136 5.2.3 Marshallian Demand, Hicksian Demand, and the Slutsky Equation......Page 138 5.3.1 The Production Function......Page 139 5.3.2 Cost Minimization and Cost Functions......Page 141 5.3.3 Profit Maximization......Page 142 5.4 Partial Equilibrium......Page 144 5.5.1 Welfare Theorems and Walras’ Law......Page 146 Existence......Page 148 Sonnenschein–Mantel–Debreu......Page 149 Investment......Page 150 5.6.2 The Ramsey–Cass–Koopmans Growth Model......Page 151 5.6.3 New Classicals and New Keynesians—Microfoundations of Macroeconomics......Page 152 5.7.1 The General Theory of the Second Best......Page 154 5.7.2 Asymmetric Information—The Markets for Lemons......Page 156 5.7.3 Efficiency and Imperfect Information......Page 158 Externalities and Imperfect Information......Page 159 Chapter References......Page 160 Exercises......Page 161 6 Critiques of the Neoclassical “Perfect Market” Economy and Alternative Price Theories......Page 162 6.2 The Mistaken Mechanical Analogy......Page 163 6.2.1 Classical Mechanics......Page 164 6.2.2 From Substance to Field......Page 165 6.2.4 The Mistaken Energy-Value Analogy......Page 166 6.2.5 The Epistemic Break Between Classical and Neoclassical Economics......Page 168 6.3.1 The Impossibility of Horizontal Demand Curves for Individual Firms......Page 169 6.3.2 The Impossibility of Simultaneously Independent Supply and Demand and of Upward-Sloping Supply Curves......Page 170 6.4.1 Problems with the “Revealed Preferences” Concept......Page 172 Endogenous Preferences......Page 174 Conspicuous Behavior......Page 176 6.4.3 Missing Procedural Aspects of Decision-Making......Page 177 6.5.1 Foundations of the Classical Theory of Prices......Page 179 6.5.2 Sraffian Critique of Neoclassical Theory of Value and Price......Page 180 6.5.3 A Classical One-Commodity Model After Sraffa......Page 181 6.5.4 A Classical N-Commodity Model After Sraffa......Page 182 6.6 An Outlook on Post-Keynesian and Institutional Price Theories: Setting and Administering Prices......Page 183 6.7 Conclusion and Outlook......Page 185 Chapter References......Page 186 Further Reading......Page 187 Exercises......Page 188 7 Real-World Markets: Hierarchy, Size, Power, and Oligopoly, Direct Interdependence and Instability......Page 190 7.1.1 Spatial Arenas, Deregulation, Complexity and Uncertainty, Coordination and Dilemma Problems......Page 191 7.1.3 Proactive Firm Strategy and Planning—Connecting Hierarchy, Size, Power, and Oligopoly to the Theory of the Firm......Page 193 7.1.4 Overview and Outlook......Page 194 7.2 Factors Leading to Size, Power, and a Small Number of Interdependent Suppliers......Page 195 7.3 Pure Monopoly......Page 196 7.3.1 Price and Output in a Monopoly......Page 197 7.3.2 The Welfare Effect of a Monopoly......Page 200 7.4 Oligopoly......Page 201 Monopoly, Cournot–Nash Oligopoly, and Polypoly Prices and Quantities Compared......Page 202 The Cournot–Nash Oligopoly as a Prisoners’ Dilemma—A Numerical Example......Page 203 7.4.2 Bertrand Oligopoly......Page 204 7.4.3 Stackelberg Oligopoly......Page 205 7.5.1 The Rationale for Natural Monopolies......Page 206 7.5.2 Sustainability and Efficiency of the Natural Monopoly in a Contestable Market......Page 207 The Case of Strict Subadditivity......Page 208 7.6.1 From Homogeneous to Heterogeneous Oligopoly and to Monopolistic Competition......Page 209 7.6.3 Heterogenization and Monopolistic Competition......Page 210 7.7 Heterogeneous Oligopolistic and Monopolistic Competition: Opportunities for Strategic Behavior of Firms and Their Poten.........Page 214 7.8 A Final Consideration of Firm Size and Power, Strategic Cooperation, Monopolistic Competition, and Real-World Markets......Page 217 Chapter References......Page 218 Solution Keys......Page 219 III: Further Tools and the Analysis of Complex Economies......Page 224 8 Tools II: More Formal Concepts of Game Theory and Evolutionary Game Theory......Page 226 8.1 Introduction......Page 227 8.2.1 Games......Page 228 8.3 Concepts from Decision Theory......Page 229 8.3.4 Hurwicz Criterion......Page 230 8.4.1 Dominance of Strategies......Page 231 8.4.2 Nash Equilibrium......Page 233 8.4.4 Mixed Strategies......Page 234 8.4.5 Nash Equilibrium in Mixed Strategies......Page 235 8.4.6 Computation of the Nash Equilibrium in Mixed Strategies......Page 238 8.4.7 Properties of the Nash Equilibrium in Mixed Strategies......Page 239 8.4.8 Further Refinements: Trembling-Hand Equilibrium and Proper Equilibrium......Page 240 8.5.1 Extensive Form Notation......Page 241 8.5.3 Backward Induction......Page 242 8.6.1 Repeated Games and Supergames......Page 243 8.6.2 Rubinstein’s Proof of the Folk Theorem......Page 245 8.7.1 Evolutionary Approaches to Game Theory......Page 246 8.7.2 Evolutionary Stability......Page 247 8.7.3 Asymmetry in Evolutionary Game Theory......Page 250 8.7.4 Replicator Dynamics......Page 251 8.9 Conclusion......Page 254 Commented Game Theory Textbook References......Page 255 Chapter References......Page 256 Exercises......Page 257 List of Symbols......Page 258 9 Tools III: An Introduction to Simulation and Agent-Based Modeling......Page 260 9.1 Introduction......Page 261 9.2 Method......Page 263 9.3.3 Numbers......Page 264 9.3.6 Simplicity......Page 265 9.4 Advantages and Disadvantages of Simulation......Page 266 9.5.2 Homogeneous Versus Heterogeneous Agents......Page 267 9.5.3 Simulating Games on Networks: The Example of the Prisoners’ Dilemma......Page 268 9.6.1 Some Preliminary Considerations......Page 269 9.6.2 General Programming Concepts and Python Commands......Page 271 9.6.3 Implementing a Simulation in Python......Page 273 9.7 Outlook......Page 279 Further Texts on Simulation......Page 280 Exercises......Page 281 10 A Universe of Economies: Interdependence and Complexity, System Trajectories, Chaos, and Self-Organization......Page 284 10.1.1 The General Equilibrium Once Again......Page 285 10.1.2 Agents in Real Space: Proximity and Distance, and the Neighborhood Structure......Page 286 10.1.3 Knowledge, Rationality, Time: General Equilibrium and Evolutionary Process......Page 287 10.2.1 Local and Global Information and Their Implications......Page 290 10.2.2 Dynamics of a Linear System......Page 291 10.2.3 Dynamics of a Nonlinear System......Page 294 10.2.4 Chaotic and Complex Dynamics......Page 295 10.2.5 General Properties of Dynamic Systems......Page 296 10.2.6 Social Systems and Economic Space – A Local- and Direct-Interaction General Equilibrium?......Page 299 10.3 A Quasi-Neoclassical Perfect-Equilibrium Model Based on Global Information and Direct Interdependence......Page 301 10.3.1 An Optimal Lifetime Consumption Problem......Page 302 10.3.2 A Quasi-Neoclassical “Market” with Consumption and Investment......Page 303 10.4.1 Emergent Institutions with Policy......Page 305 10.4.2 An Evolutionary Solution with Emergent Institutions Again......Page 306 Chapter References......Page 308 Exercises......Page 309 11 Dynamics, Complexity, Evolution, and Emergence—The Roles of Game Theory and Simulation Methods......Page 310 11.1 Introduction......Page 311 11.2.1 Increasing Complexity: A Sequence of Models......Page 312 Model Extensions......Page 316 11.2.2 Defining Complexity......Page 317 11.2.3 Complexity in the Sequence of Models......Page 321 Phase Space......Page 323 Fixed Points......Page 324 Attractors......Page 325 Phase Transitions and Bifurcations......Page 326 Historic Debates on Emergence and Reductionism......Page 327 Definitions and Conditions of Emergence......Page 328 11.3.4 The Surprised Observer......Page 329 11.3.5 Assessing the Stability of Nonlinear Systems: Linearizing Jacobians......Page 330 11.4.1 How Does Complexity Emerge?......Page 332 11.4.2 Fractals, Complexity, and Emergence in the Real World......Page 333 11.5 Modeling Complexity......Page 334 Chapter References......Page 335 Exercises......Page 336 IV: History of Thought and Contemporary Models in Complexity Economics......Page 338 12 Themes of Complexity in the History of Economic Thought: Glimpses at A. Smith, T.B. Veblen, J.A. Schumpeter, and Others......Page 340 12.1.1 The Use of Dealing with the History of Economic Thought......Page 342 12.1.3 Unintended Consequences Within a System of Emerged Social Institutions, and the Importance of Formal Institutional A.........Page 343 12.2.1 The Alleged Adam Smith Problem......Page 345 12.2.2 Competing Motives......Page 346 12.2.3 Prisoners’ Dilemma Type Situations......Page 347 12.2.4 Ability of, and Inclination to, Self-Approbation: The Impartial Spectator......Page 348 12.2.5 Recurrent Interaction, Experience, Social Learning, and the Development of an Institution......Page 349 12.2.6 A General Rule as a Positive Institution......Page 351 12.2.7 Some Implications for, and Comparisons with, a Game-Theoretic View......Page 352 12.2.8 Informal Institutions and Formal Institutional Design by the State......Page 353 12.2.10 A Final Remark......Page 354 12.3 Thomas R. Malthus: Introducing Basic Biological Principles—The “Principle of Natural Selection” and the Danger of “Bio.........Page 355 12.4 Karl Marx: Principles of Historical System Evolution, and Collective Action Capacity......Page 357 12.5 Carl Menger: The Early Austrian Individualistic Evolutionary Approach—An Organic Analogy of Market Evolution......Page 358 12.6 Alfred Marshall: “Economic Biology” as the “Mecca” of Economics......Page 360 12.7 Thorstein B. Veblen: The Founding of Evolutionary-Institutional Economics......Page 362 12.8.1 Genuine Macro, with Complex Microfoundations......Page 365 12.8.3 Rediscovering Keynes’ Microfoundations: Uncertainty, “Animal Spirits,” and Emerging Institutions in Post-Keynesianism .........Page 366 12.8.5 Dealing with Keynes’ Legacy: Neo-Keynesian, New Keynesian, and Post-Keynesian......Page 369 12.9 Joseph A. Schumpeter: Complex Process Through “Entrepreneurial” Innovation—Bridging Neoclassical Mainstream and Evolution......Page 370 12.10 Karl Polanyi: The “Market” Economy, the Disembedding of the Market and its Downside......Page 372 12.11 Gunnar Myrdal: Path-Dependent Development of Complex Systems—Circular Cumulative Causation......Page 375 12.12 Herbert A. Simon: Complexity, Bounded Rationality, and “Satisficing”......Page 376 12.13 Nicolas Georgescu-Roegen: The Economy as an Open System, and its Entropy......Page 378 12.14 Karl W. Kapp: Open-Systems Approach, Entropy, and the “Social Costs of Private Enterprise”......Page 380 12.15.1 Further Developing Classical and Marxian Modeling: Piero Sraffa......Page 383 Commons......Page 384 Kalecki......Page 385 Kaldor......Page 386 Minsky......Page 387 12.15.4 Developing Neoclassical Economics into Greater Complexity: Vilfredo Pareto......Page 388 12.16 Clustering Economists in Diverse Economic Paradigms, and a Final Remark......Page 389 Chapter References......Page 390 Further Reading......Page 393 Veblen, Keynes, Schumpeter......Page 394 Solution Keys......Page 395 13 Recent Core Models of Complexity Microeconomics......Page 396 13.2 A. Sen (1967) on the Isolation Paradox and Assurance Game, and the Importance of the Future......Page 398 13.3.1 Schotter......Page 401 13.3.2 Axelrod......Page 404 13.3.3 Lindgren......Page 405 13.4.1 A Spatial Proximity Model......Page 406 13.4.2 A Bounded-Neighborhood Model......Page 408 13.4.3 A Territoriality Model......Page 409 The Dynamics of Attendance......Page 410 Alternative Expectation/Attendance Relations......Page 411 13.5.2 Arthur: The El Farol Bar Problem......Page 412 13.6.1 Standardization and Technology Choice in Economic Systems......Page 414 13.6.2 A Formal Model of Technology Choice and Lock-In......Page 415 13.7 R.W. Cooper and A. John (1988) on Synergies and Coordination Failures......Page 417 13.8.1 Evolutionary Approaches to Economics......Page 419 13.8.2 An Evolutionary Approach to the Theory of the Firm......Page 420 13.8.3 An Evolutionary Growth Model......Page 421 13.9.1 Illustrative Example......Page 424 13.9.2 NK Landscapes......Page 425 13.9.4 Search......Page 426 13.10 D.J. Watts and S.H. Strogatz (1998) on Small-World Networks......Page 427 13.10.2 Formalization of the Small-World Phenomenon......Page 428 13.11.1 The Distribution of Node Degrees......Page 430 13.11.2 A Model of Network Growth......Page 431 13.11.3 Scale-Free Networks, Small-World Networks, and the Real World......Page 432 13.12.1 Veblenian Evolutionary Institutionalism Today......Page 433 13.12.2 The Institutionalist Definition of Institutions......Page 435 13.12.4 The Asymmetry in the Institutional Dichotomy, Ceremonial Dominance, and Ceremonial Encapsulation......Page 436 The Different Benchmarks: The Institution as Enabler Versus Ceremonial Dominance......Page 439 Degeneration of an Instrumentally Warranted Institution in a Hierarchical Environment: The Career Motive and the Motive of .........Page 440 Another Ceremonial Motive, Value, and Warrant: “Institutional Economies of Scale”—from an Instrumental Institution to a Cer.........Page 441 13.12.6 The Process and Forms of Institutional Change......Page 443 13.13.1 General......Page 445 13.13.2 The Model......Page 446 13.13.3 The Lab Experiments......Page 447 Chapter References......Page 449 Further Reading—Online......Page 451 14 The Size Dimension of Complex Economies—Towards a Meso-Economics: The Size of Interaction Arenas and the Emergence of Me.........Page 452 14.1 Introduction: Why Agents Might Rationally Strive for Smaller Structures......Page 454 14.2.5 A Maximum Critical Mass......Page 455 14.2.6 Manifold Applications......Page 456 14.2.7 Incomplete Information, Lacking Adaptive and Learning Pressure, and Other Caveats......Page 457 14.2.10 Micro-to-Macro Aggregation or Meso Emergence?—the Systematic Place of Meso......Page 458 14.3.3 Theoretical and Methodological Literature So Far......Page 459 14.4.3 Collective-Good Character of Basic Information......Page 463 14.4.7 Habituation......Page 464 14.4.10 ... and the Resulting Complex Process—and Changes It Will Trigger......Page 465 14.5 A Stochastic Element, the Population Perspective, and the Minimum Critical Mass Again......Page 466 14.6.3 Reputation Chains......Page 467 Improving Cooperators’ Outcomes......Page 468 More Generally: Net Externalities, Synergies, Cumulative Learning in Economics......Page 469 Agency Mechanisms and Partner Selection......Page 470 A Mixed Strategy Equilibrium......Page 471 14.7.1 Generalization from Expectations to Contextual and General Trust......Page 472 14.7.2 High Levels of General Trust and Macro-Performance in Countries with Inner Meso-Structure......Page 473 14.8 Conclusion: Toward Meso-Economics......Page 475 Chapter References......Page 476 Further Reading—Online......Page 480 V: Further Applications: Information, Innovation, Policy, and Methodology......Page 482 15 The Information Economy and the Open-Source Principle......Page 484 15.1 Introduction......Page 485 15.2.1 Data, Information, and Knowledge as Club Goods......Page 487 15.2.2 Network Goods, Network Technologies, and Network Externalities......Page 488 15.2.3 The Resulting Social Dilemma......Page 489 Size Effects and Price Wars......Page 491 Controlling a Sector, Planned Obsolescence, and Refusal to Innovate......Page 493 Two-Sided Networks......Page 494 Profitable Piracy......Page 495 Open Source as a Business Strategy......Page 496 15.3.1 Open Source in Practice......Page 497 15.3.2 Open Source in Theory......Page 498 15.3.3 Open Source in Reality......Page 499 15.3.4 Open Source Everywhere......Page 500 Network Externalities......Page 501 15.5 Conclusion......Page 502 Chapter References......Page 503 Exercises......Page 504 16 Networks and Innovation—The Networked Firm, Innovation Systems, and Varieties of Capitalism......Page 506 16.1 Overview......Page 507 16.2 Towards a Complexity-Based Understanding of Innovation......Page 509 16.3.1 Transaction Costs and Market Versus Hierarchy Optimization......Page 512 16.3.2 The Networked Firm......Page 513 16.3.3 The Organizational Triangle......Page 514 16.3.4 The Instrumental and Ceremonial Aspects of the Institutionalized Network Dimension......Page 516 16.4 National Innovation Systems......Page 518 16.4.2 Innovation Processes in Complex Environments......Page 519 16.4.3 Perspectives on Policy......Page 520 16.5.2 Four Main Focuses—Firms, Flexibility, Cities, and Institutions......Page 521 16.6.1 Beyond the Predominant Understandings of Institutions at the Time......Page 523 16.6.2 Institutional Influence and Strategic Interactions......Page 524 16.6.4 Beyond the Market-Hierarchy Dichotomy......Page 525 16.6.6 Challenges and Focuses for Policy Makers......Page 527 16.6.7 VoC and (the Challenges of) Globalization......Page 528 16.6.8 Some Extensions and Basic Critique of the VoC Concept......Page 529 16.7 Chapter Conclusion: Main Aspects of the Above Concepts......Page 530 Further Reading—Online......Page 531 17 Policy Implications: New Policy Perspectives for Private Agents, Networks, Network Consultants, and Public Policy Agencies......Page 532 17.1.2 The Complexity of Economic Systems, and a Systemic Approach to Policy......Page 534 A Minimum Complexity of a Controlling Policy System......Page 535 A Systemic, Experience- and Learning-Based, Nonmyopic Policy Approach......Page 536 17.1.3 Further “Complexity Hints for Economic Policy”......Page 537 A Solution Possible .........Page 538 A Social Evaluation, and “Meritorization” Criteria......Page 539 Typical (Macro-) Economic Problems as Individualistic Cooperation Failure (Market Failure) in Complex Economies......Page 540 A New Private–Public Interrelation Defined......Page 541 Making Use of the Interests of the Private Agents in the Collective Good......Page 542 17.2.3 “Meritorics” for a Negotiated Economy and for an Instrumental Institutional Emergence......Page 543 A Paradigm Change Toward a Leaner Policy......Page 546 A General View Based on the Single-Shot Inequality......Page 547 A Policy Approach for Different Types of Policy Agents......Page 549 17.2.6 Further Game-Theoretically Informed Policy Issues......Page 550 17.3 Policy Implications for Information and Innovation in Firms, Networks, and Open-Source Communities......Page 553 Intellectual Property Rights and Openness......Page 554 Innovation Policies......Page 555 Endogenous Development Policies, Local and National......Page 556 17.4 Final Conclusions......Page 557 Chapter References......Page 558 Further Reading—Online......Page 560 18 How to Deal with Knowledge of Complexity Microeconomics: Theories, Empirics, Applications, and Actions......Page 562 Mathematical Models......Page 563 18.1.2 Pattern Modeling and Case Studies as Method......Page 564 18.1.3 Scientific Systems and Reality: Is Strict Testing Possible?......Page 565 18.3.1 The Axiomatic Method and the Original Criticism......Page 566 18.3.3 ... and Publication Biases......Page 567 18.3.4 Replicability of Results and Data Transparency—Toward a New Academic Ethics......Page 568 18.4.1 Friedman: Logical Positivism, Eternal Laws, and “Good Predictions”......Page 569 18.4.2 Critiques: Assumptions, Predictions, and Strict Testing......Page 570 18.5 Emulating Wrong Ideals: The McCloskey Critique of the Rhetoric of Economics......Page 571 18.6.1 Modern Measurement Theory and the Duhem–Quine Thesis......Page 573 18.6.2 Scientific Systems as Paradigms, and Scientific Revolutions......Page 574 18.7 Critical Realism......Page 575 18.8 Reality, “Realism,” and Constructivism......Page 577 18.9 Epistemological Pluralism......Page 578 18.10.1 Policies in a Broad Understanding......Page 580 18.10.2 Knowledge, Expanding, and Transforming......Page 581 Chapter References......Page 582 Further Reading—Online......Page 584 Index......Page 586

The Microeconomics of Complex Economies uses game theory, modeling approaches, formal techniques, and computer simulations to teach useful, accessible approaches to real modern economies. It covers topics of information and innovation, including national and regional systems of innovation; clustered and networked firms; and open-source/open-innovation production and use. Its final chapter on policy perspectives and decisions confirms the value of the toolset.

Written so chapters can be used independently, the book includes an introduction to computer simulation and pedagogical supplements. Its formal, accessible treatment of complexity goes beyond the scopes of neoclassical and mainstream economics. The highly interdependent economy of the 21st century demands a reconsideration of economic theories.

• Describes the usefulness of complex heterodox economics
• Emphasizes divergences and convergences with neoclassical economic theories and perspectives
• Fits easily into courses on intermediate microeconomics, industrial organization, and games through self-contained chapters