Rule Taxonomy

The main branches of modern biology, such as genetics and epigenetics, investigate the nature of biological rules. Many of the recent scientific advances in biology have occurred in these branches.

However, the concept of the rule has at least been applied in various specialised areas in economics, for example, in the guise of social, technical, behavioural and cognitive rules. The aim is to combine them into a unified rule taxonomy.

The broad distinction between biological and cultural rules is critical for drawing the boundaries of the discipline. Economics belongs to the cultural level of the evolved hierarchy of natural history. Its subject matter is neither the analysis of the structure and evolution of biological rules nor the more narrowly conceived analysis of the coevolution of biological and cultural rules.

The rules of the cultural level - cultural rules - may be used for both economic and non-economic operations. Differentiation on the basis of the kind of operation sets economics apart from other social sciences. Thus we arrive at the definition: econom­ics is the study of cultural rules for economic operations. Economic operations include production, transaction and consumption.

Biological rules describe the innate capacity of Homo sapiens (HS) to make and to use rules. Our focus being on rules for economic operations, we are interested specifically in Homo sapiens oeconomicus (HSO).

The neoclassical Homo oeconomicus is a particular “species” of HS equipped with a single invariant rule: the maximisation of expected utility under constraints. This HS rule is taken to represent a universal “law” (not subject to further scrutiny), and the subject matter of neoclassical analysis is economic operations obeying to this law.

Analytically, we have two levels of investigation:

1. Generic level: rules for economic operations.

2. Operant level: economic operations based on these rules.

To summarise, neoclassical economics occupies the operant story in this analytical edifice, evolutionary economics the generic one, putting in centre stage investigations into the rule knowledge that enables economic operations.

Homo sapiens oeconomicus generates cultural artefacts. Economics deals with cul­tural artefacts under the special premise of scarcity. Looking for the constituent char­acteristics of the two prime categories - HSO and economic artefacts - there should be little in the way of objection if we associate the former with the concept of subject and the latter with that of object. Introducing the general concept of the carrier, we get HSO as the carrier of subject rules and economic artefacts as the carriers of object rules.

Table 5 Rule taxonomy

The validity of economic theory depends crucially on the giving of proper emphasis to “subjective” (subject-related) and “objective” (object-related) factors. Evolutionary economics eschews monist interpretations and views change in/of the economy generally as a process of coevolution between subject rules and object rules.

The usefulness of rule taxonomy depends largely on its ability to delineate a scope wide enough to embrace all the relevant rule categories and pinpoint them in a way that they may be used as building blocks for theorising. To this end, subject rules may be subdivided into cognitive/mental rules and behavioural rules, on the one side, and object rules may be differentiated into social rules (for organising subjects) and technical rules (for organising physical artefacts), on the other side (see Table 5). Evolutionary (or generic, rule-based) economics is, then, the study of the structure and evolution of the economy in terms of these rules.

The four rule categories correspond to major research areas and are represented by large bodies of publications. Although this is, in general, a sign of scientific progress, the further task is to investigate the specific aspects that are relevant for explaining the structure and evolution of the economy. This immediately brings back into focus the economic agent as a rule maker and rule user. At the level of micro-foundations, the evolutionary programme calls essentially for a reconstruction of the economic agent as HSO (Davis 2010; Gerschlager 2012).

The generic programme of cognitive and behavioural economics deals specifically with aspects of rule processes. Topics covered by the two broad agendas include the cre­ation of novel rules, selective adoption, generic learning, the adaptive accommodation of novel rules in the extant knowledge base and retaining them in a meta-stable process for recurrent operations (Witt 2003; Dosi et al. 2005; Hodgson 2006; Herrmann-Pillath 2012).

The nature of object rules may be highlighted by making reference to four rule categories: rules expressing product characteristics; industry or manufacturing rules; Nelson-Winter (N-W) organisational routines; and Ostrom social rules.

Traditionally, a product (commodity, good) is defined as a “quantil”, following Jevon’s phrasing (number of units times price). There are no rules that would “inform” the product of its qualitative characteristics. In the 1970s Kelvin Lancaster initiated a discussion by proposing to augment the neoclassical utility function with factorials of product attributes. This was a major step forward, and a generic approach has now been employed in evolutionary economics by defining Lancaster’s characteristics as rules that expound plasticity and evolvability (Saviotti and Metcalfe 1984; Saviotti and Pyka 2004;).

At a global scale, a taxonomy of object rules has been developed for manufactur­ing systems and industrial sectors. Traditionally, classifications such as the Standard Industrial Classification (SIC) have followed the template of Carolus Linnaeus, who assumed morphological characteristics to be immutable and who posited them in a grand classificatory schema on the basis of their similarity. This kind of taxonomy may prove helpful for making statements about structure.

The rules of biology and of economics are in a continual state of flux, however, which calls for a taxonomy that accounts for this fact. Based on Darwinism, cladistics and similar taxonomies have been devised to reckon with the phenomenon of change. They integrate aspects of the genealogy of rules with morphological attributes reconciling the demands of structure and of change when charting empirical data. Cladistic taxonomy has inspired novel taxonomies in evolutionary economics, as in the form of cladograms for manufacturing systems or phylogenetic trees for industrial sectors (McCarthy et al. 2000; Andersen, 2003;), or particular aspects of evolutionary taxonomy such as classify­ing technology policy (Cantner and Pyka, 2001).

Up until this point, the focus has been on object rules for organising physical entities. In contradistinction, Nelson-Winter routines and Ostrom social rules are for organising agents - subjects, not physical entities. N-W organisational routines are especially inter­esting from a conceptual point of view, since they combine the concept of rule with that of actualisation (axiom 1).

Generally, a routine is a rule that has passed through a process of routinisation. An N-W routine is a rule that has attained the specific informational content of a social organisational rule. Other rules, not related to the process of organising, may also be the subject of routinisation.

The process of routinisation is part of an overall process of rule actualisation. The entire process of rule actualisation involves the generation, adoption and retention of a rule. These may be conceived of as constituting three distinct phases of a micro­trajectory of rule actualisation:

Phase 1 - generation of novel rule. Phase 2 - adoption of rule by carrier.

Phase 3 - retention of rule for recurrent operations.

The routinisation process relates to the second and third phases of the trajectory. Routinisation presupposes a rule.

Routinisation - being a mental process - takes place at the locus of an individual. Veblen has called this process habituation and its outcome habit (Hodgson 2006; Brette and Mehier 2008). Individual routines and habits may therefore be taken to be identical. An individual Nelson-Winter routine is an organisational habit of an individual agent as a member of an organisation, such as the firm.

The Nelson-Winter concept of routine has led to various discussions, which have fur­nished valuable building blocks for reconstructing the evolutionary micro-foundations of economics, and in turn they have stimulated discussions in the management sciences (Becker 2008; Lazaric and Oltra 2012).

The work of Elinor Ostrom and her collaborators represents a milestone in the con­struction of a taxonomy of social rules (Ostrom 2005, Ostrom and Basurto 2011). On the basis of dozens of empirical studies and having inspected about 100 empirically recorded social rules, she has devised a “universal” rule taxonomy. This general result is particularly interesting, as Ostrom links it up with major theoretical approaches, thereby demonstrating its great usefulness for theory making. She connects the rule categories of choice rules, pay-off rules or scope rules with game theory and those of positional rules, entry rules or boundary rules with the organisation theory featured in the concept of Nelson-Winter routines.