The Nelson and Winter Models Revisited: Prototypes for Computer-Based Reconstruction of Schumpeterian Competition

Abstract

The report deals with the reconstruction and further development of the models of industrial dynamics developed by Nelson and Winter and summarized in their famous 1982-book. The basic idea underlying the Nelson and Winter models is that a verbal account of Schumpeterian competition can naturally be transformed into a description of a computational process in which firms not only make short-term production decisions and investment decisions but also perform a search for new technologies. The latter search is successful in a probabilistic manner, and its successes and failures determine an evolutionary process of the industry. Although the simulation models of Nelson and Winter have played a central role in the "take-off" of evolutionary economics, they have never been fully documented and their differences have never been explored. The resulting problems are obvious for students who start from Nelson's and Winter's most famous accounts, but even for researchers with a full collection of the underlying research papers, the situation is quite confusing. The report tries to make things easier by presenting overviews of the structure of Nelson and Winter models as well as fully implemented versions of their simulation models--especially NELWIN78 based on ch. 13 of the 1982-book and NELWIN77 based on ch. 12. The report furthermore presents a computer-based environment (implemented in MAPLE V Rev2) for revision of the models and for analysis of the overwhelming number of data resulting from simulation runs.

JEL Classification: L0, L1