Thursday, September 15, 2005

Virtuous Circle

A virtuous circle or cycle is a condition in which a favorable circumstance or result gives rise to another that subsequently supports the first.

Wikipedia (http://en.wikipedia.org/wiki/Virtuous_circle) explains "In many parts of economics there is an assumption that a complex system of determinants will tend to lead to a state of equilibrium. When this tendency is absent we use terms like virtuous circle and vicious circle (or virtuous cycle and vicious cycle) to describe these unstable pattern of events. Both circles are complexes of events with no tendency towards equilibrium (at least in the short run). Both systems of events have feedback loops in which each iteration of the cycle reinforces the first (positive feedback). The difference between the two is that a virtuous cycle has favorable results and a vicious cycle has deleterious results. These cycles will continue in the direction of their momentum until an exogenous factor intervenes and stops the cycle. The prefix "hyper" is sometimes used to describe these cycles. The most well known vicious circle is hyperinflation."

Wikipedia gives an example of a virtuous circle resulting from innovation:



"Economic growth can be seen as a virtuous circle. It might start with an exogenous factor like technological innovation. As people get familiar with the new technology, there could be learning curve effects and economies of scale. This could lead to reduced costs and improved production efficiencies. In a competitive market structure, this will likely result in lower average prices. As prices decrease, consumption could increase and aggregate output also. Increased levels of output leads to more learning and scale effects and a new cycle starts."

What would a virtuous and a vicious circle look like for an innovation commons? This after all is the heart of the matter. It could assist us in understanding the question that started the whole effort, "Why are some innovation commons successful and others fail?"

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