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2001PAOLO RAMAZZOTTI - MARCO RANGONE
Firms and Selection: Possible Features of Innovation Processes, 22p
ABSTRACT
Firms and Selection: Possible Features of Innovation Processes•
Paolo Ramazzotti* and Marco Rangone**
The evolutionary stream of research on firms that followed Nelson and Winter’s work
(1982) has by now become impressive. Two strands of research deserve particular
attention: the so-called competence- or capabilities-based approach (CBA) to the firm,
which emphasises the role of the firm as a creator variety; the models of selection which
stress how variety tends to be reduced through the competitive process. The two
approaches provide distinct and apparently complementary views of variety.
The aim of this paper is to argue that the above complementarity is not
straightforward. To this end, it focuses on the role prices, knowledge and institutions play
in an evolutionary context, where firms behave according to the findings of CBA.
We begin by discussing the circumstances which underlie the learning process of
firms: what might be called the determinants of competencies. In our view, the CBA
emphasises the role of procedural rationality and knowledge as opposed to mere
information processing. Consequently, it argues that the price mechanism as such cannot
allow agents to decide what to do: information without an interpretative framework is
meaningless. Consumers must base their choices on knowledge which is not transmitted
by prices. Firms, in turn, create knowledge which affects the way consumers learn. Their
behaviour ultimately determines – or at least influences – the conditions whereby they, or
their products, are selected.
This first step provides the premises for a subsequent discussion of how firms cope
with selection. We refer to Metcalfe’s (1998) selection model and investigate the
requirements that need to be fulfilled for prices to operate as the prime element in the
selection mechanism. To this end, the boundaries of the selection environment are
examined in terms of the relation between prices and institutions and in terms of
consumer behaviour.
We finally discuss how firms cope with their selection environment. The key tenet is
that they are not just constrained by it. They react to it by seeking innovations that change
it to their advantage. Thus, independently of whether their behaviour is purposive or not,
they affect the selection mechanism. As a result, selection turns out to be an intuitive but
still inadequately defined concept.
The interdependence between the selection mechanism and the object of selection
casts doubt on the claim that the interaction between variety generation and selection
fosters the diffusion of superior technologies. It also implies that the very patterns of
growth and development may be influenced by it: there is no reason why growth should
be achieved but, above all, growth accounting becomes a rather awkward task. The
“endogenisation” of selection therefore leads to theoretical, methodological and policy
implications which are briefly discussed in the concluding remarks.
JEL Classification: D21, D83, L15, 031, O33
