engleski

The Microeconomic Foundations of Business Cycles: From Institutions to Autocatalytic Networks

Although there is little doubt that business cycles will stay with us in the future, there is no consensus about the origins of downturns. This article discusses business cycles from the tradition of endogenous explanations and especially those that emphasized the causal importance of productive overcapacity. During the early stages of evolution of markets, firms and their clients form autocatalytic loops, which promote growth, selection, and organization. Positive feedback loops, which dominate the early growth stage, contribute to the formation of market’s asymmetric structure characterized by power-law distributions in the number and intensity of links at the level of a firm and for firm sizes at the level of the economy. The economy network that emerges is marked by a small number of highly connected firms or “hubs” where the small-world effect streamlines the spread of perturbations throughout the economy. Under the constraint of institutions, uncertainty, and non-convex production costs, autocatalytic processes among firms and their markets inevitably lead to intermittent production overcapacity, and consequently, to business contractions. Downturns are thus unavoidable, and large recessions are rare but expected events, which do not require any exceptional or external causes. Downturns, as well as upturns, are inscribed in the very functioning of market economies.

institutions, autocatalysis, business cycles, complex systems, logistic growth, overcapacity, small world networks

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