Evolutionary economics is a branch of economic theory that draws on evolutionary biology and emerged during the early 1980s in the book “An Evolutionary Theory of Economic Change,” by Richard R. Nelson and Sidney G. Winter. Even though the field of evolutionary economics has only fairly recently developed, distinguished economists such as Joseph Schumpeter, Herbert Simon, and Edith Penrose built the foundation for the field of evolutionary economics during the 1940s and 1950s. In essence, evolutionary economics explains economic phenomena by using evolutionary methodology.
Evolutionary economics argues that markets are selection devices in the modern day economy. Firms and corporations are selected based on their productivity and revenue levels. Thus, firms with low productivity will be consistently beaten and lose market share, which will selectively force the firm out of the market. On the other hand, firms with a high productivity will gain a higher share of the market and continue to grow. This is natural selection, which holds that the strong will survive.
Another aspect of evolutionary biology that has been adapted into evolutionary economics is the concept that the traits beneficial to an organism will become more common within the population. Evolutionary economics theory has developed this idea to also apply to firms within a given market. Less successful firms will attempt to copy the routines — equivalent to the traits in the theory of evolution — of more successful firms to compete. Thus, the most successful routines will become more common within the market as low productivity firms attempt to increase productivity by imitating high productivity firms.
Evolutionary biology also states that mutations occur within the gene pool of a species and the most beneficial mutations are incorporated into the entire population. In evolutionary economics, the equivalent of this idea is the concept of firms searching for innovation. Innovation involves bringing new routines into the market, which is the equivalent of a mutation bringing a new trait to a population. Successful new routines will begin to be imitated by less successful firms, which will increase the presence of the routine in the market.
Evolutionary economics has been applied to the fields of industrial organization, organization theory, economic geography, game theory, innovation management, network theory and management sciences. This is primarily the result of the underlying concept of evolutionary economics. This concept holds that firms must utilize routines that are competitive and unable to be replicated by other firms to be successful.