Two halves don't make a whole: instability and idleness emerging from the co-evolution of the production and innovation processes

TL;DR

This paper introduces an agent-based model showing how production inefficiencies like idleness and instability emerge from endogenous factors, highlighting the complex interplay between production and innovation processes.

Contribution

It presents a novel disaggregated, agent-based model (NGR-ADAPT) that captures endogenous inefficiencies and the co-evolution of production and innovation dynamics.

Findings

Idleness can lead to skill decay but also fosters innovation.

Organizational decisions and innovation pace critically affect efficiency.

Co-evolution of production and innovation influences short- and long-term performance.

Abstract

We propose a disaggregated representation of production through an agent-based fund-flow model (NGR-ADAPT) within which inefficiencies, such as factor idleness and production instability, emerge from endogenous frictions. The model incorporates productivity dynamics (learning and depreciation) and is extended with time-saving process innovations. Specifically, we assume that workers possess inherent creativity that flourishes during idle periods. The firm, rather than laying off idle workers, is assumed to exploit this potential by involving them in the innovation process. Results show that a firm's organizational and managerial decisions, the temporal structure of the production system, the speed at which workers learn and forget, and the pace of innovation are critical factors influencing production efficiency in both the short and long run. The co-evolution of production and innovation processes emerges in our model through the two-sided effects of idleness: whereas it drives skill decay it is also a condition for creative thinking that can be leveraged for innovation. In doing so, we question the utilization of labour as an adjustment variable in a productive organisation. The paper concludes by discussing potential solutions to this issue and suggesting avenues for future research.