Bellerbys Economics - Mr Stephenson

Monday, March 31, 2008

Bio-Economists

There has long been a school of economists who describe themselves as Physical Economists and who seek to relate the principles of Physics to Economics. A simple example of this is their concept of kinetic money (money that is in circulation) and potential money (money stored in a bank).

But now, we seem to be developing a new branch of economists who might describe themselves as Bio-Economists. A research team from Imperial College interested in population control recently proposed that in competitive environments, evolution slowed down. They looked at rates of evolution amongst populations of birds to support this hypothesis. Sure enough, in environments where many different species of birds existed, each species found its own niche and was very reluctant to then evolve beyond that.

How similar this is to the concept of perfect competition in Economics. In theory, businesses are so busy competing, that they don't have time to innovate. A quick survey of any high street will demonstrate that once businesses have found their niche (kebab shops, estate agents, clothes shops, bookshops, coffee bars), virtually every high street begins to look the same and businesses do not innovate away from that. Is it the case then that we could expect more innovation from oligopolistic structures where there is non-price competition? A situation where businesses are able to bear risk as an economy of scale and seek to develop new product markets? It's an interesting thought.

I look forward to exploring more Bio-Economics with you in the future - is the Market a living organism? Discuss.

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