Darwin, recessions and firms : an evolutionary perspective on firms in recessions

Abstract

Evolutionary theory is well suited for studying how firms are affected by recessions, but little focus has been given, both theoretically and empirically, to this phenomenon. In this paper I draw on evolutionary theory and complex system theories to develop a general model of how recessions affect firm selection. The model shows that recessions can affect selection processes in two distinct ways, one by tightening the selection environment and one by imposing changes in the shape of the fitness landscape. I then use these insights to argue that the narrow “cleansing effect”-interpretation of selection commonly used in the business cycle literature is in danger of ignoring important aspects related to selection in recessions.