Punctuated Equilibrium and Power Law in Economic Dynamics

TL;DR

This paper investigates whether a toy model of economic dynamics exhibits self-organized criticality, finding that incorporating fitness and selection mechanisms is necessary to produce power-law and SOC behaviors.

Contribution

It demonstrates that adding fitness and selection concepts to the economic model is essential for achieving SOC-like power-law dynamics.

Findings

Punctuated equilibrium emerges in the model.

SOC behaviors are observed with added fitness and selection.

Power-law distributions are achieved through these mechanisms.

Abstract

An interesting toy model has recently been proposed on Schumpeterian economic dynamics by Thurner {\it et al.} following the idea of economist Joseph Schumpeter. Punctuated equilibrium dynamics is shown to emerge from this model and some detail analyses of the time series indicate SOC kind of behaviours. The focus in the present work is to toss the idea whether the dynamics can really be like a self organized critical (SOC) type. This study indicates that it is necessary to incorporate the concepts of 'fitness' and 'selection' in such a model in the line of the biological evolutionary model by Bak and Sneppen in order to obtain power law and thus SOC behaviour.