An introduction to the system dynamics of technological change: the basic tools

This Handbook presents a systematic attempt to show how building upon the achievements of the economics of innovation, an economic approach to complexity can be elaborated and fruitfully implemented. This introductory chapter articulates the view that innovation is the emergent property of a system characterized by organized complexity. It implements an approach that enables to provide economic foundations to analyzing the incentives of economic action and the notion of organized complexity. In this approach agents retain the typical characteristics of economic actors, including intentional choice and strategic conduct, augmented by the attribution of creativity. Economic agents are able to react to out-ofequilibrium conditions and may try and change both their production and their utility functions. The localized context of action and the web of knowledge interactions and externalities into which each agent is embedded is crucial to make their reaction actually creative, as opposed to adaptive, so as to shape the actual effects of their endogenous efforts to change their technologies and their preferences. In turn, the successful introduction of new localized technologies, changes the structural features of the system and hence the flows of knowledge externalities and interactions. This dynamic loop exhibits the characters of a recursive, non-ergodic and path dependent historic process. This approach enables to move away from the static, lowlevel complexity- of general equilibrium that applies when both technologies and preferences are static, as well as from the random variation of evolutionary thinking, and to grasp the system dynamics of technological change as an endogenous and recurrent process that combines rent-seeking intentionality at the agent levels with the appreciation of the knowledge externalities and interactions that stem from the organized complexity of the structural characters of the system.