Knowledge and the Evolving Economy

This paper addresses the problem of knowledge and the far-reaching implications it bears upon innovation and the functioning of economic systems. It develops a stylised analysis of the micro-dynamics of knowledge generation, exchange and absorption. It discusses the properties of knowledge accumulation as a complex process: adaptive, path-dependent, context-dependent, open-ended and creative in the sense that it always entails the potential to endogenously generate radical novelty, in line with theory and evidence from the economics of innovation, but fundamentally at odds with a number of important tenets of equilibrium economics.