Giovanni Dosi
Encyclopedia
Giovanni Dosi is Professor at the Sant'Anna School of Advanced Studies
http://www.sssup.it in Pisa (Italy) , where he also coordinates the International Doctoral Program in Economics http://www.phdeconomics.sssup.it/ and leads the Laboratory of Economics and Management (LEM) http://www.lem.sssup.it/index.html. His major research areas include economics of innovation and technological change, industrial organization and industrial dynamics, as well as theory of the firm and corporate governance. Professor Dosi is the Visiting Professor at The Manchester Institute of Innovation Research (MIoIR), The University of Manchester, UK, as well as Editor for Continental Europe of Industrial and Corporate Change http://icc.oxfordjournals.org/. Also, he co-directs the specific task forces on industrial policy and intellectual property rights within the Initiative for Policy Dialogue
(Joseph Stiglitz chairman) based at Columbia University New York http://www0.gsb.columbia.edu/ipd/programs/programtype.cfm?ptid=2. A comprehensive selection of his work has been published in Innovation, Organization and Economic Dynamics. Selected Essays, Cheltenham: Edward Elgar, 2000.
as being especially relevant for economic analysis, among others:
S.F.1 Over the 19th-20th century technological innovation has proved to be the major contributor to the economic growth of countries, whose growth rates have however displayed an expanding variance.
S.F.2 The learning processes that firms undertake to carry out innovations are characterized by trials, errors and unexpected success.
S.F.3 Firms are highly heterogeneous in terms of sizes, productivities, and profitabilities. In particular, firm sizes display stationary skewed distributions, while productivities and profitabilities display stationary wide supports of their fat tail
ed distributions.
These facts have led Dosi to point out some theoretical implications, which raise contradictions within Neoclassical economics
and bear favorable witness to Evolutionary economics
.
and technological trajectory.
In analogy with Thomas Kuhn
's definition of a scientific paradigm, Dosi has defined a technological paradigm as the general outlook on the productive problems faced by firms. As such, a technological paradigm is composed by some sort of model of the technology at stake (e.g. the model of a microprocessor) and by the specific technological problems posed by such model (e.g. increasing computational capacity, reducing dimensions, etc.). Therefore, technology is identified as a problem-solving activity in which the problems to be solved are selected by the paradigm its self. In this sense, a technological paradigm entails strong prescriptions on the direction of technological change, that is the direction toward which future technical improvements will converge. Such gradual improvements along the specific lines prescribed by the paradigm are what constitute technological trajectories and progress.
Such interpretation of technological change brings Dosi to identify a limited influence of market signals on the direction of technological change. More precisely, in his view relative prices might affect the direction of technological change only within the boundaries defined by the nature of the technological paradigm. Such idea can be better understood by analyzing the effect of market signals in their two possible directions: moving "downstream" (i.e. from the technology to the sale of goods) and "upstream" (i.e from the market environment to the technology).
Going "downstream", from the technology to the sale of goods, market signals enter the picture at opposite stages. First, market signals can act ex ante in the competition among different paradigms: if more paradigms are available, firms would select one or the other according to their expected profitability. But once a paradigm is affirmed, the direction of technological change would be already implied by its technological prescriptions. Second, market signals can act by selecting ex post those applications of the affirmed paradigm (i.e. the final products) that best fit the market requests. However, at that point their impact on the direction of technical change would be null, since such direction had already been decided by the prescriptions of the affirmed paradigm.
Going "upstream", from the market environment to the technology, market signals act to inform the producers of the technology about variations in relative price
s. However, the extent to which technology producers can shift from more expensive to cheaper inputs, or modify technology toward the use of cheaper complement good
s is bound by technical constraints. Such constraints emerge because inputs are characterized by low substitutability due to the physical and chemical limits involved in the production process. Consequently, the upstream incentives given by market signals affect only the rate of use of certain inputs as well as the rate of development of a trajectory but not the direction of technical change, which is bound by the technical constraints of production.
's distinction about rationality, he has proposed the distinction between substantive uncertainty and procedural uncertainty. In his view, "the former is related to some lack of information about environmental events, while the latter concerns the competence gap in problem-solving". Nonetheless, both of them generate "limitations on the computational and cognitive capabilities of the agents to pursue unambiguously their objectives". Crucially, though, the fact that such types of uncertainties limit the computational rationality of agents leads them precisely to develop routines and decision rules that are the likely explanation of their heterogeneous behaviors. Moreover, even though such routines and decision rules are not optimally determined, they might well prove more "intelligent" than "optimal" decisions especially when applied to turbulent selection landscapes.
in his essay The Methodology of Positive Economics. In such work Friedman asserted that maximizing behavior was a reasonable working approximation to describe the choices of economic agents: in fact, even if not all economic agents actually maximize (for example because some make mistakes) only the "fittest" ones will be selected by the market. Therefore, those agents that actually maximize would be the only "survivors" to market selection, and hence they would gather very closely around the single optimal behavior. In other words, the tails of the distribution will tend to disappear as market selects the best "genes", which would turn out to be both "optimal" (in terms of fit to the market selection) and "representative" (since it would be the only surviving type). However, the empirical findings that constitute S.F.3 prove the exact opposite of Friedman's prediction: very different "genes" survive to the market. As a consequence, a realistic representation of economic behavior should rather allow for firm-specificities, which would explain the heterogeneity found in the data: a point that was clearly made by Richard Nelson
and Sidney Winter in their book An Evolutionary Theory of Economic Change.
Sant'Anna School of Advanced Studies
The Sant'Anna School of Advanced Studies of Pisa is a special-statute public university located in Pisa, Italy, operating in the field of applied sciences....
http://www.sssup.it in Pisa (Italy) , where he also coordinates the International Doctoral Program in Economics http://www.phdeconomics.sssup.it/ and leads the Laboratory of Economics and Management (LEM) http://www.lem.sssup.it/index.html. His major research areas include economics of innovation and technological change, industrial organization and industrial dynamics, as well as theory of the firm and corporate governance. Professor Dosi is the Visiting Professor at The Manchester Institute of Innovation Research (MIoIR), The University of Manchester, UK, as well as Editor for Continental Europe of Industrial and Corporate Change http://icc.oxfordjournals.org/. Also, he co-directs the specific task forces on industrial policy and intellectual property rights within the Initiative for Policy Dialogue
Initiative for Policy Dialogue
The Initiative for Policy Dialogue is a non-profit organization based at Columbia University in the United States.IPD was founded in July 2000 by Joseph E...
(Joseph Stiglitz chairman) based at Columbia University New York http://www0.gsb.columbia.edu/ipd/programs/programtype.cfm?ptid=2. A comprehensive selection of his work has been published in Innovation, Organization and Economic Dynamics. Selected Essays, Cheltenham: Edward Elgar, 2000.
Economic Analysis
Giovanni Dosi's economic analysis is characterized by the contemporaneous attempt to (i) identify empirical regularities and (ii) provide micro-foundations consistent with such regularities. As such, his work is a mix of statistical investigations and theoretical efforts.Stylized Facts
Throughout his work Dosi and his co-authors have identified some stylized factsStylized facts
In social sciences, especially economics, a stylized fact is a simplified presentation of an empirical finding. A stylized fact is often a broad generalization that summarizes some complicated statistical calculations, which although essentially true may have inaccuracies in the detail.A prominent...
as being especially relevant for economic analysis, among others:
S.F.1 Over the 19th-20th century technological innovation has proved to be the major contributor to the economic growth of countries, whose growth rates have however displayed an expanding variance.
S.F.2 The learning processes that firms undertake to carry out innovations are characterized by trials, errors and unexpected success.
S.F.3 Firms are highly heterogeneous in terms of sizes, productivities, and profitabilities. In particular, firm sizes display stationary skewed distributions, while productivities and profitabilities display stationary wide supports of their fat tail
Fat tail
A fat-tailed distribution is a probability distribution that has the property, along with the heavy-tailed distributions, that they exhibit extremely large skewness or kurtosis. This comparison is often made relative to the ubiquitous normal distribution, which itself is an example of an...
ed distributions.
These facts have led Dosi to point out some theoretical implications, which raise contradictions within Neoclassical economics
Neoclassical economics
Neoclassical economics is a term variously used for approaches to economics focusing on the determination of prices, outputs, and income distributions in markets through supply and demand, often mediated through a hypothesized maximization of utility by income-constrained individuals and of profits...
and bear favorable witness to Evolutionary economics
Evolutionary economics
Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology...
.
Technical change
The role of technological progress as an explanation of contemporary economic growth (S.F.1) has led Dosi to carefully analyze the nature of technology. In particular, he has suggested an interpretation of technical change resting on the concepts of technological paradigmTechnological paradigm
A concept of technological paradigm combines a set of interrelated and pervasive radical innovations. For instance, when important technological innovations which are originally produced in a specific branch of the economy are constellated, pervasive effects on other economic system sectors might...
and technological trajectory.
In analogy with Thomas Kuhn
Thomas Kuhn
Thomas Samuel Kuhn was an American historian and philosopher of science whose controversial 1962 book The Structure of Scientific Revolutions was deeply influential in both academic and popular circles, introducing the term "paradigm shift," which has since become an English-language staple.Kuhn...
's definition of a scientific paradigm, Dosi has defined a technological paradigm as the general outlook on the productive problems faced by firms. As such, a technological paradigm is composed by some sort of model of the technology at stake (e.g. the model of a microprocessor) and by the specific technological problems posed by such model (e.g. increasing computational capacity, reducing dimensions, etc.). Therefore, technology is identified as a problem-solving activity in which the problems to be solved are selected by the paradigm its self. In this sense, a technological paradigm entails strong prescriptions on the direction of technological change, that is the direction toward which future technical improvements will converge. Such gradual improvements along the specific lines prescribed by the paradigm are what constitute technological trajectories and progress.
Such interpretation of technological change brings Dosi to identify a limited influence of market signals on the direction of technological change. More precisely, in his view relative prices might affect the direction of technological change only within the boundaries defined by the nature of the technological paradigm. Such idea can be better understood by analyzing the effect of market signals in their two possible directions: moving "downstream" (i.e. from the technology to the sale of goods) and "upstream" (i.e from the market environment to the technology).
Going "downstream", from the technology to the sale of goods, market signals enter the picture at opposite stages. First, market signals can act ex ante in the competition among different paradigms: if more paradigms are available, firms would select one or the other according to their expected profitability. But once a paradigm is affirmed, the direction of technological change would be already implied by its technological prescriptions. Second, market signals can act by selecting ex post those applications of the affirmed paradigm (i.e. the final products) that best fit the market requests. However, at that point their impact on the direction of technical change would be null, since such direction had already been decided by the prescriptions of the affirmed paradigm.
Going "upstream", from the market environment to the technology, market signals act to inform the producers of the technology about variations in relative price
Relative price
A relative price is the price of a commodity such as a good or service in terms of another; i.e., the ratio of two prices. A relative price may be expressed in terms of a ratio between any two prices or the ratio between the price of one particular good and a weighted average of all other goods...
s. However, the extent to which technology producers can shift from more expensive to cheaper inputs, or modify technology toward the use of cheaper complement good
Complement good
A complementary good, in contrast to a substitute good, is a good with a negative cross elasticity of demand. This means a good's demand is increased when the price of another good is decreased. Conversely, the demand for a good is decreased when the price of another good is increased...
s is bound by technical constraints. Such constraints emerge because inputs are characterized by low substitutability due to the physical and chemical limits involved in the production process. Consequently, the upstream incentives given by market signals affect only the rate of use of certain inputs as well as the rate of development of a trajectory but not the direction of technical change, which is bound by the technical constraints of production.
Uncertainty
The trial and error procedures adopted by firms to improve along a technological trajectory (S.F.2) have taken Dosi to assess the issue of uncertainty. At a general level, trial and error procedures imply that firms might not be able to forecast completely the outcome of a choice they make; in fact, if they could foresee the error, they would presumably avoid it because it is costly. Such a fact is strongly at odds with any assumption of "perfect rationality" or "farsightedness" on the side of economic agents, which is a foundational element of the Neoclassical approach. Dosi has analyzed this issue by assessing the ways in which economic agents perceive and deal with choices that have an uncertain outcome. In analogy with Herbert SimonHerbert Simon
Herbert Alexander Simon was an American political scientist, economist, sociologist, and psychologist, and professor—most notably at Carnegie Mellon University—whose research ranged across the fields of cognitive psychology, cognitive science, computer science, public administration, economics,...
's distinction about rationality, he has proposed the distinction between substantive uncertainty and procedural uncertainty. In his view, "the former is related to some lack of information about environmental events, while the latter concerns the competence gap in problem-solving". Nonetheless, both of them generate "limitations on the computational and cognitive capabilities of the agents to pursue unambiguously their objectives". Crucially, though, the fact that such types of uncertainties limit the computational rationality of agents leads them precisely to develop routines and decision rules that are the likely explanation of their heterogeneous behaviors. Moreover, even though such routines and decision rules are not optimally determined, they might well prove more "intelligent" than "optimal" decisions especially when applied to turbulent selection landscapes.
Heterogeneity
The fact that firms appear to be consistently heterogeneous (S.F.3) has brought Dosi to criticize the Neoclassical prediction that firms in an industry converge toward some kind of "optimal" or "representative" characteristic. For such argument to be valid, the characteristics of firms would need to evolve in time toward a normal distribution, possibly showing some shrinking of the support. Notably, this theoretical implication poses an unresolved challenge to the arguments put forward by Milton FriedmanMilton Friedman
Milton Friedman was an American economist, statistician, academic, and author who taught at the University of Chicago for more than three decades...
in his essay The Methodology of Positive Economics. In such work Friedman asserted that maximizing behavior was a reasonable working approximation to describe the choices of economic agents: in fact, even if not all economic agents actually maximize (for example because some make mistakes) only the "fittest" ones will be selected by the market. Therefore, those agents that actually maximize would be the only "survivors" to market selection, and hence they would gather very closely around the single optimal behavior. In other words, the tails of the distribution will tend to disappear as market selects the best "genes", which would turn out to be both "optimal" (in terms of fit to the market selection) and "representative" (since it would be the only surviving type). However, the empirical findings that constitute S.F.3 prove the exact opposite of Friedman's prediction: very different "genes" survive to the market. As a consequence, a realistic representation of economic behavior should rather allow for firm-specificities, which would explain the heterogeneity found in the data: a point that was clearly made by Richard Nelson
Richard Nelson
Richard Nelson may refer to:* Richard Nelson , anthropologist and writer* Richard Nelson , Episcopal bishop in America...
and Sidney Winter in their book An Evolutionary Theory of Economic Change.