Geography Reference
In-Depth Information
broad types of environments: the 'adoptive' and the 'adaptive' environ-
ment. These two types are not intended to be seen as mutually exclusive,
but serve as the two extreme stylized ends of a continuum, somewhere
along which the real economy will exist.
In Alchian's adoptive environment, all firms are more or less identical
to each other in that no firm has any particular or systematic information
advantage over any other. The results of the competitive process will imply
ex post
that some firms will be successful while others will not, although
ex
ante
no individual firm had any a priori knowledge that their products or
techniques would be superior to those of their competitors. This charac-
terization of the economy is basically Darwinian, in that the environment
'adopts' the firms which are better suited to the needs of the economy,
even though the firms have no particular knowledge beforehand that this
was the case. In statistical terms, in any given time period in this adoptive
environment, the probability of a particular single firm making a success-
ful strategic decision is identical to that of all the other individual firms.
In contrast, in Alchian's adaptive environment, some individual firms are
able to gather and analyse market information more efficiently and effec-
tively than others, simply by reason of their size. Large firms in general are
able to utilize resources in order to acquire and process information relat-
ing to their market environment, with the purpose of subsequently using
such information to their own advantage. In statistical terms, therefore, in
any given time period in Alchian's adaptive environment, the probability
of a particular firm making a profitable strategic decision is increased by
reason of its size.
In the real world of heterogeneous firms and imperfect information,
smaller firms will tend to perceive themselves to be at an information
disadvantage relative to larger firms. Therefore, they will tend to make
decisions which mimic or dovetail with those of the larger firms, in matters
such as styles, protocols, formats and technology. In part this is because
they perceive the market leaders to be the best barometers of market con-
ditions, and also because the behaviour of the market leaders itself often
contributes significantly to the overall economic environment simply
because of their size. By copying the behaviour of the larger firms the
small firms thus perceive that they will maximize the likelihood of their
own success. The result is that large firms tend to overcome uncertainty
by information gathering and analysis, and small firms tend to overcome
uncertainty by imitation.
The type of leader-follower behaviour suggested by Alchian's frame-
work is common in many models of oligopoly and uncertainty, but so
far the Alchian logic has not been set in the context of geography, despite
being particularly pertinent to questions of location. In environments of
