Prices and knowledge: A market-process perspective

98 Prices and knowledgeas will be shown, Nelson’s notion of bounded rationality is the sameas Simon’s.) 4Equilibrium and changeAs another proof of the irrelevance of modern welfare economics tothis debate, Nelson perceptively notices that although its argumentsare presented in an equilibrium setting,most of the discussions of organizational problems explicitly orimplicitly assume a dynamic context, in which preferences,resources, and technologies are changing over time in a way that isnot fully predictable. 5 (Nelson and Winter 1982:360)If the organizational problem were to be considered for an unchangingworld, or for one with fully anticipated changes, both the ‘informationand computation’ and the ‘command and control’ problems couldpresumably be solved ‘once and for all’. Any differences in the costsof solving them for each system ‘might not loom largewhen…amortized over the time horizon of the economic system’.Under steady-state conditions, [Nelson (1981:99) argues]resources are already basically allocated, and there is not muchinformation flowing in the system to suggest that resourceallocation needs to be changed. Big computational machinery isnot needed, and the communication channels can be rather thin.It is in such an unchanging setting, Nelson says, that standard theoryusually analyses the organizational problem (Nelson and Winter1982:360).Once the same issues are considered for a world in ‘economicflux’, the nature and magnitude of the organizational problemchanges, and any comparison between alternative economic systemshas to be concerned with ‘accuracy and speed of response to changedconditions’ (ibid.). With changing data there will be changingoptimum allocations, and although an omniscient agent wouldalways know what the latter are, a bounded-rationality agent will not.The problem is that ‘individual economic units have to figure what todo at any time with no assurance that what they were doing last time