The rise and fall of catastrophe theory applications in economics: Was the baby thrown out with the bathwater?

This paper discusses the mathematical origins of catastrophe theory, the various applications of it in economics, the controversy over its use, and the criticism of it as a fad, with the subsequent general disappearance of its use in economics. It presents a criticism of the criticism of the most famous application and a discussion of its current relevance and available alternatives. It concludes that indeed the baby was largely thrown out with the bathwater, and that catastrophe theory should be openly and properly used again in economics. (C) 2006 Elsevier B.V. All rights reserved.