1 The allocation of complexity 1 Jason Potts, Kate Morrison and Joseph Clark School of Economics & ACCS, University of Queensland, Q4072, Australia. j.potts@uq.edu.au , j.clark@uq.edu.au , kate@katemorrison.com , ABSTRACT: Much thought and effort has gone into the design of new conceptual frameworks and theoretical tools for the analysis of evolving, self-transforming economic systems. Nevertheless, why not follow Marshall? In this paper, we present a novel but not unfamiliar way of analyzing the complexity of economic systems as the outcome of a self-organizing process. We shall propose a comparative static framework for analysis of the allocation of rules between different classes of carrier. We start by assuming complexity (i.e. that evolutionary forces maintain complexity in open systems), and then analyzing the distribution of state-space equilibria under different relative costs (prices) of embedding rule-complexity in different systems, such as between agents or institutions. The outcome is an allocation of complexity. Changes in relative prices, as caused by technological, institutional or financial innovation, say, will effect the position of the equilibria in carrier-space. We may, therefore, study how changes in the cost of embedding rules conditions the evolution of the complexity of an economic system. The upshot is a set of simple tools for arraying economic forces over the different dimensions of economic evolution in order to study the effects of relative price changes on the dynamics of economic evolution. The use of complexity as a conservational concept (and its derivative, a convexity argument) may prove expedient for further theoretical and conceptual development of economic analysis. The generic graphical model, a possible bridge between neoclassical and complexity economics, is as such: 1 Thanks to seminar participants at (1) Organizations, innovation and complexity – New perspectives on the knowledge economy, NEXUS–CRIC Workshop, University of Manchester, 9–10 Sept 2004; (2) Shifting boundaries: Governance, competence and economic organization in the knowledge economy, Bristol Business School, 2–3 Sept 2004; (3) ECG/ACCS seminars, UQ… Complexity of carrier X Complexity of carrier Y Isocomplexity curve Relative price of embedding complexity in |Y/X| Equilibrium allocation of complexity