ABSTRACT
In this chapter, Hahn’s definition of equilibrium in terms of agents’ theories and policies is adapted to explain stability and change in firms and markets. People are treated as scientists, who use, test, and sometimes replace hypotheses. This process must take place within a framework of rules or conventions, which is incompletely specified; but the framework itself is subject to change, which may be evolutionary or revolutionary. Nelson and Winter’s conception of an organization as a cluster of routines is extended to a cluster of research programmes, which guide the interpretation of evidence and constrain conjectures. Every market, too, operates according to a set of conventional practices or institutions which may also be treated as a research programme. Attempts to innovate may then be examined in relation to the research programme of both firm and market.
