Uncertainty, Inadequate Innovation Ability And Economic Evolution

The dynamic economy is a significant evolutional process-the emergence of new things, path dependence, the slow and continuous change. This initiates a wide range of study and abundant outstanding literatures, although a mathematical model with a clear and concise logic has not been established. This thesis reveals the mechanism of the evolution through logic, builts a mathematical equilibrium model of economic evolution with the ideas of Knight's uncertainty, Schumpeter and Ayers'combination of innovation and Alchian's trial and error, and gives consistency interpretation to entrepreneurs, institutional change, urban economy and economic growth.The world, especially its society and economy is uncertain, and so the continuance is the ultimate human concerns. Uncertainty will reduce the cluster diversity, only those with ability to maintain diversity was likely to continue. As for the cluster complementing diversity through replication, self-independent simple replication can produce enough diversity when their individual has sufficient innovation (mutation) capacity, while this capacity is weak, the cluster will lost. Evolution is those clusters with inadequate innovation ability make their ways of continuance under uncertain though combinational replication.Economics is the study of human behavior governed by combinational strategy, and economic dynamics is the process of the rounds of strategy diversity reduction and formation on the strategic gene-strategy-strategy cluster framework. The strategy diversity continually evaporates under uncertain and increasse through the combinational replication of the survival strategic gene. In the same process, the diversity of each strategy gene pool decreases under uncertain and is resumed by strategy gene innovation, while this diversity decreasing and renewing process is relatively slowly carrying out. The digital simulation of economic evolution shows that, in the long run, the diversity of each strategy gene pool and so the potential strategic diversity of the strategy cluster is in dynamic equilibrium, and the dynamic equilibrium diversity of each strategy gene pool is positively determined by its innovation probability.People solves the series of Ex Post ploblems he repeatedly encounteres with a satisfied counterplan set. People has not complete theory guiding himself to select the best counterplan because of uncertainty, and he inevitably needs to act some strategies to determain which is satisfied plan, and only those who can provide more trial and error strategies are more likely to abtain counterplan set of higher rewards. Because new problems continuously appear and existing problems continuously vanish, the level of satisfaction continnuously increases and people's new strategies continuously been innovated, the counterplan set needs constantly updating.People raises trail and error strategic plan through assembling the strategy genes of his existing counterplan set, and so updates his counterplan set. The dynamic process of people's counterplan set therefore shows significant features of evolution. Thus the diversity of every strategy gene pool and the potential strategy diversity are all in dynamic equilibrium. When one has excellent innovation ability in one or a few number of low-diversity strategy gene pools, such as basic technology, or in several medium-diversity strategy gene pools, such as management knowledge, he will significantly raise more trial and error strategy and therefore abtain higher reword counterplan and continnuously update it. They can also imparte his counterplan set as knowledge to normal people, and share their improved benefits. Such is entrepreneur of being able to obtain high reward (profits) as an outstanding people.Entrepreneur is also facing Ex Ante ploblems. As people can provide more strategy plans, a perfect forecast will remarkably enhance his reward in handling the Ex Ante ploblems he is encountering, entrepreneur therefore needs higher qualitied forecast than normal.The combination space of strategy will expand when people share their knowledge of counterplan sets, and people can thus abtain counterplan sets of high reward in short run. However, the counterplan sets will be involved in a common evolutional process through knowledge sharing. Such maybe enhance or reduce the potential strategy diversity of those people by means of the size of knowledge-sharing. To seek higher dynamic equilibrium diversity and so the higher long-term performance, people will share knowledge among different subgroup, and such is the urban. Because the innovation abilities of different strategy gene pools are different, people will share knowledge of different strategy gene pool in different size, and so an urban hierarchy system is built.Economy is with different economic activities implemented under different satisfied theoretic contract counterplan, and the dynamic process of theoretic contract counterplan is of evolution. Institution is the macroscopical appearance of those contract clauses massively uses in governing economic activities. The dynamic equilibrium diversity of a certain institution is determinated by its innovation ability. People has deficit innovation ability in culture, custom, and so the informal institution diversity of is low, while the normal contract clause is diversiform.The potential institutional diversity of a economy determines the institutional adaptive efficiency which determines its performance in the long run. When a new instituion gene was introduced in a certain low diversity institutional gene pool, the potential institutional diversity and so the adaptive efficiency will be significantly improved, while for those in high diversity institutional gene pool, the improvement will be few. As human intervention on institutional evolution, innovation incentives and extrusion suppression are ways enhancing institutional adaptive efficiency, so as to enhancing the long run performance. For the higher acting performance, the institutional innovation incentives should be focused on formal institution of general arrangements, and the extrusion suppression be focused on the protection of cultural, customs and other low-diversity institutions.The higher reward counterplan set continuously replaces the existing plan set in evolution, and then the people's output constantly improve. Such is economic growth on economy level, and its growth rate is determined by the potential strategy diversity of its nomal people. When there is an innovation in a certain strategy gene pool, this innovation and its diffusion will drive the potential strategy diversity inceasing in a period, and shows a high growth. The economic growth is the sum of the different growth waves drived by innovations of all strategy gene pool. When the economy size is significantly smaller than the size of sharing those strategy gene pool knowledge with lowest innovation ability, the economy will show growth in low-growth in long-run with short-run growth miracle.New strategy gene knowledge spread to other countries will'drive them into a short-run economic high growth named economic catch-up. The potential strategy diversity of those countries with low current output is low, and the knowledge spread will significantly enhance its diversity, and so its people can significantly upgrade their counterplan sets. Thus, the lower the current output level, the higher catch-up growth rate.