The regulatory dilemma: an agent-based approach to policy making within innovation systems

Abstract

Government regulation plays a pivotal role in influencing the innovation activities of companies, industries and whole economies. However, sound regulation must be based on an understanding of how a policy change will affect the behaviour of various actors in the market. This implies that some form of predictive modelling is necessary for intelligent policy formation. With this in mind, an ‘almost zerointelligent’ agent-based model is developed to represent typical market dynamics. The agents make price and production decisions and decide whether or not to develop or imitate a product based on a pre-defined ‘research’ and ‘imitation” ratings. The findings illustrate a Pareto Optimal line where both consumers and companies prefer the development of new products; however, different imitation rates create opposite results. Interestingly, policy changes in environments where imitation is already low, seems to cause larger impacts on the system. Furthermore, the findings also suggest that when regulation encourages imitation, improvements to consumers or companies can be made without hurting the other as much. These preliminary results set the foundation for future models that use regulation to steer the system of innovation towards these preferred outcomes.

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ORCID for Enrico Gerding: orcid.org/0000-0001-7200-552X

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