Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2013:4: A Darwinian theory of transformation pressure – the stimuli of negative shocks for productivity and renewal in established firms

Lennart Erixon ()
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Lennart Erixon: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden

Abstract: The theory of transformation pressure maintains that central actors in established firms will be more productive when experiencing an actual fall in profits. Actors fearing that the survival of the firm is at stake will then become more alert, calculating and creative favoring a transformation. The neo-Schumpeterians follow Schumpeter by largely ignoring the importance of negative driving forces for innovations and the productivity performance of firms. In the neoclassical Schumpeterian literature stronger competition and also lower product demand may induce innovations and productivity increases in established firm. But this literature neglects the underlying psychological mechanism. The ideas in the theory of transformation pressure can easily be incorporated into a Darwinian framework emphasizing basic human drives, the struggle for existence and the adaptation to new external circumstances. The results from tests of the theory of transformation pressure are ambiguous. An experiment confirmed that firms are governed by bounded rationally but only partly that they will upgrade their growth strategy in a profit recession. There are arguments in both industrial economics, psychology and neuroscience for a qualified theory of transformation pressure. Productivity is enhanced by moderate pressure or by periodic shifts between hard pressures and good opportunities.

Keywords: transformation pressure; bounded rationality; creative destruction; negative driving forces; productivity growth; innovations; neuroscience; stress; economic psychology; universal Darwinism

JEL-codes: B52; D21; E32; L21; O31

59 pages, January 18, 2013

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