EAEPE

Kerstin Hötte

It is a great honour to be one of the recipients of the Kapp Prize 2022 awarded for the paper “Skill transferability and the stability of transition pathways - A learning-based explanation for patterns of diffusion” published in the Journal of Evolutionary Economics. 

The paper is one of the outcomes of my PhD thesis and I presented an earlier version on the EAEPE conference 2019 in Warsaw. The work greatly benefited from feedback by the EAEPE community and from incredibly valuable comments by the reviewers.

In the paper, I use a technology-extension of the macroeconomic ABM Eurace@unibi to analyse the impact of knowledge characteristics on pathways of technology transitions. A technology transition is a process when one incumbent technology is replaced by an entrant alternative. The most prominent empirical example of our time is the low-carbon transition when incumbent fossil fuel technologies are replaced by green alternatives. 

In the paper, I can show that the process of transition and its economic consequences may be dependent on the transferability of knowledge between the two competing technologies. Intuitively, it is easier to adopt a new technology when the transferability of knowledge between the old and new technology is high. Hence, the new technology initially diffuses very fast. In contrast, if the transferability is low, the economy may be locked in the old technology and it is hard for the new technology to take off. 

However, the paper illustrates that there is a trade-off: a high transferability means that it is easy to adopt a new technology but it is also easy for adopters to switch back to the old technology. This may create technological instability which is economically costly as it hampers productivity-enhancing technological specialisation. In other words, the analyses show a trade-off between technological exploration and exploitation arising from the transferability of technological knowledge. 

Dany Lang and Ítalo Pedrosa

It is a great honor and achievement for Italo Pedrosa and me to receive this prize, and to succeed such prestigious researchers as Joseph Stiglitz and Giovanni Dosi, and all the other beloved colleagues who were attributed the prize over the past years, notably Andrea Roventini, Alberto Botta, Mark Setterfield, Antoine Godin, …

For me, coming from a family background were nobody would study and go to the university, this prize embodies the recognition of a long and most difficult journey outside of the box of conventional economic thinking, and constitutes the reward and accomplishment of years of non-conventional, but meaningful, modelling, combining post-Keynesian, evolutionist and Regulationist views.

Italo and I started this paper while Italo was in the last year of his PhD in Campinas, and got a grant to come to Paris, in order to work with my team and myself. We were both convinced that some of the critiques of Minsky’s’ Financial Instability Hypothesis (FIH), most notably the ones of Toporowski and Lavoie, made sense. And this, even more than the empirical literature finds little support for the FIH. Minsky’s views regarding the link between increased private debt and financial instability had to be completed to consider the possibility of Steindlian dynamics, i.e., that investment by some firms can result in higher profits, fostering the accumulation of liquid assets and leading to an ex-post decrease in the aggregate leverage. Consequently, profit-rate heterogeneity plays a crucial role.

We then constructed an agent-based stock-flow consistent model (AB-SFC), evolutionary and Keynesian-Kaleckian, that adds the missing elements to the FIH. We used it to show how cash flows distribution across firms impact the aggregate leverage ratio-systemic financial fragility relation. As a matter of consequence, systemic financial fragility is a cushioned and imperfect mirror of the aggregate leverage ratio.

This process has been long, and we are more than happy that the result has been published in the Journal of Evolutionary Economics and elected by the EAEPE as a recipient of the Kapp prize. Thank you so much for this recognition of the work, that means a lot to us!