2. Neoclassical, institutional and evolutionary approaches in economics
Though any attempt to describe and characterise the major theories in any discipline is inherently
difficult, we feel it is useful as a way to differentiate a new research programme from existing ones as well
as to show the linkages between the proposed research programme and more familiar lines of thought. In
the context of evolutionary economics, such an attempt is even more justified as the emergence of modern
evolutionary economics as a theory is to be understood as a critique of mainstream neoclassical
economics, or what Nelson and Winter (1982) have described as ‘orthodox theory’. Although Nelson and
Winter (1982) acknowledge the danger of sketching a caricature of the neoclassical paradigm as “... a
straw man or an obsolete, primitive form of economic theory” (p. 7), they criticize the neoclassical
preoccupation with maximizing individuals and equilibrium analysis as the cornerstones of economic
theorizing.
However, and this is where our attempt differs from most reflections on evolutionary economics, we
also differentiate evolutionary economics from institutional economics even though these two theories are
very often associated with one another. Illustrative is that followers of the ‘old’ institutional economics in
the US have somewhat confusingly called themselves evolutionary economists (Hodgson, 1998). This
association has largely been based on the common critiques on neoclassical economics rather than on the
fundamental principles that evolutionary and institutional economics would share per se. For instance,
both approaches build on the notion of ‘bounded rationality’ and ‘path dependence’, and account for the
impact of institutions on economic behaviour in general. Few people would agree, however, that all
studies gathered under the umbrella of institutional economics could equally be called evolutionary
economics and vice versa. This is especially true for comparative studies in (both old and new)
institutional economics dealing with alternative institutional arrangements and their comparative
performance, ignoring the role of dynamics central to evolutionary economics. Conversely, a large
number of influential contributions in evolutionary economists, especially in the field of industrial
organisation, do not include the role of institutions at all (e.g., Winter 1984; Arthur, 1994; Klepper 1996).
To differentiate the three aforementioned theories we inevitably have to dispense with some of the
nuances. Our objective is not to go into the details of each approach as such, which has been done
elsewhere (Hodgson, 1998; Nelson, 1995b). In fact, the way in which we characterise neoclassical,
institutional and evolutionary economics is by referring mainly to rather old or text-book versions of these
theories, without claiming modern approaches to fit one of the three categories in all instances. On the
contrary, our stylised differentiation of economic theorising into three approaches primarily serves a
heuristic use, and allows us to investigate to what extent progress has been made on the interfaces between
the three approaches.
2.1 Neoclassical economics
Neoclassical economics stands out as the most coherent and well-developed theory in economics, and
possibly, in the social science in general. Following a strict definition of the Kuhnian notion of a paradigm
developed within the context of the natural sciences, neoclassical economics (including game theory) is
perhaps the only theory that would count as a paradigm. Its conceptual foundations can be traced to
influential works by Jevons and Marshall, yet its paradigmatic form has been firmly established just after
the Second World War in standard text books as the one by Samuelson published in 1948 and repeatedly