A Discontinuity Model of Technological Change: Catastrophe Theory and Network Structure

Discontinuities as a crucial aspect of economic systems have been discussed both verbally—particularly in institutionality theory—and formally, chiefly using catastrophe theory. Catastrophe theory has, however, been criticized heavily for lacking micro-foundations and has mainly fallen out of use in economics and social sciences. The present paper proposes a simple catastrophe theory model of technological change with network externalities and reevaluates the value of such a model by adding an agent-based micro layer. To this end an agent-based variant of the model is proposed and investigated specifically with regard to the network structure among the agents. While the macro level of the model produces a classical cusp catastrophe—a result that is preserved in the agent-based form—it is found that the behavior of the model changes locally depending on the network structure, especially if networks with features that resemble social networks (low diameter, high clustering, power law distributed node degree) are considered. While the present work investigates merely an aspect out of a large possibility space, it encourages further research using agent-based catastrophe theory models especially of economic aspects to which catastrophe theory has previously successfully been applied; aspects such as technological and institutional change, economic crises, or industry structure.