Inframarginal Contributions to Development Economics

The following sections are included:

• Preface

• Contents

The following sections are included:

• Why Consider the Inframarginal Approach to Economic Development?

• Smith's View of Economics and Economic Development

• Where has the Division of Labour Gone?

• The "Steps" of Inframarginal Analysis

• Even a Simple Inframarginal Model has Much to Say About Development

• Concluding Remarks

• References

The following sections are included:

• The State of the Debate

• Isolation of the Problem

• What is Optimum Pricing?

• The Argument for Multi-Part Pricing

• Multi-Part Pricing Compared with the Hotelling–Lerner Solution

• Average Cost Pricing Compared with the Hotelling–Lerner Solution

• The Problems that Remain

It is well known that Charles Darwin's work on evolution, according to his own statement, was partly inspired by Malthus' theory of population. To this extent economics may therefore count itself among the sources of modern biology. Apart from this initial link, however, economics has had less contact with biology than with almost any other major science. With the physical sciences, particularly classical mechanics and thermodynamics, economics at least has some conscious affinity of method, and with the social sciences it shares the subject matter (though little else), but with biology it appears to have nothing in common. It would be presumptuous for an economist to argue that closer relations between economics and biology would benefit the other field. All I want to point out here is that economists may derive some useful insight from observation of the non-human living world. This is particularly true for that much-neglected but centrally important chapter of economics: the division of labor, or specialization as it may be more appropriately called in the present context. Specialization, as we shall see, is closely, connected with what biologists call speciation, or the formation of species…

Externality has been, and is, central to the neo-classical critique of market organisation. In its various forms — external economies and diseconomies, divergencies between marginal social and marginal private cost or product, spillover and neighbourhood effects, collective or public goods — externality dominates theoretical welfare economics, and, in one sense, the theory of economic policy generally. Despite this importance and emphasis, rigorous definitions of the concept itself are not readily available in the literature. As Scitovosky has noted, "definitions of external economies are few and unsatisfactory".¹ The following seems typical:

External effects exist in consumption whenever the shape or position of a man's indifference curve depends on the consumption of other men.

[External effects] are present whenever a firm's production function depends in some way on the amounts of the inputs or outputs of another firm².

It seems clear that operational and usable definitions are required…

The following sections are included:

• Introduction

• A Ricardian Model with Endogenous and Exogenous Comparative Advantages

• General Equilibrium and its Inframarginal Comparative Statics

• Effects of Trade on Income Distribution in the Developed Country

• Conclusion and Policy Implication

• References

The following sections are included:

• Introduction

• A Model with Two Consumer Goods and M Consumer-Producers
  • Specification of the model
  • Individuals' decision problems and corner solutions
  • Corner equilibrium and general equilibrium and its comparative statics

• A Model with N Consumer Goods and M Consumer-Producers

• Concluding Remarks

• References

The following sections are included:

• Introduction

• A Model with Three Goods

• The Individual Optimal Decision

• The Markets and Candidates for Equilibrium (Corner Equilibria)

• The Pareto Optimum Corner Equilibrium

• The Relationship between the Equilibrium and the Pareto Optimum

• Equilibrium and its Comparative Statics

• Conclusions

• Appendix A: The Choice of Structures

• Appendix B: Corner Equilibrium and the Restricted Pareto Optimum

• Appendix C: A Proof to Proposition 6

• References

The following sections are included:

• Introduction

• A Model with Consumer-Producers, Economies of Specialization, and Transaction Costs

• Configurations and Market Structures

• The General Equilibrium and its Comparative Statics

• Conclusion

• Appendix: A Proof of Proposition 1

• References

The following sections are included:

• Introduction

• Economies of Transaction Agglomeration and Division of Labour

• The Model

• Equilibrium Residence Structure and Division of Labour

• Comparative Statics

• Concluding Remarks

• Appendix A

• Appendix B

• Appendix C

• References

The following sections are included:

• Introduction

• A Model with Intermediate Goods

• Configuration and Corner Solution versus Market Structure and Corner Equilibrium

• Structure of Residual Rights, Economies of Specialization, Economies of Division of Labor, and Economies of the Firm

• Implications and Conclusions

• Appendix: Proof of Proposition 1

• References

The following sections are included:

• Introduction

• The Theories of the Firm and the Story behind the Formal Model

• A Model with Consumer-Producers, Economies of Specialization and Transaction Costs

• Configurations, Market Structures and General Equilibrium

• Development in Division of Labor and Average Employment

• Conclusions

• Appendix A: Proof of Proposition 1

• References

The following sections are included:

• Introduction

• Model

• Individual Decisions and Static Equilibrium

• Dynamic Equilibrium

• Emergence of Firms from the Evolution in Division of Labor

• Conclusion

• Appendix A: A Proof of Lemma 1

• Appendix B: Proof of Proposition 1

• Appendix C: A Proof of Proposition 2

• References

The following sections are included:

• Introduction

• A General Equilibrium Model of Principal-Agent Relationship

• Corner Equilibria in Six Structures

• General Equilibrium

• Welfare Analysis and Endogenous Transaction Costs

• Concluding Remarks

• Appendix: Proof of Theorem 1

• References

The following sections are included:

• Introduction

• A Model with Increasing Returns to Specialization
  • A model with m goods
  • Individual decisions
  • Equilibrium

• Comparative Statics

• Remarks

• Appendix: A Proof of Proposition 1

• References

The following sections are included:

• Introduction

• A Two-Person Two-Sector Model
  • Specification
  • Specialization and transaction
  • The non-convexity of the PPF

• Possible Equilibrium Scenarios
  • Scenario 1: Autarky
  • Scenario 2: Division of labor without externality remedy
  • Scenario 3: Division of labor with externality remedy

• The Impact of a Pigovian Tax

• Extensions and Discussion
  • Other related research
  • An extreme example: The prohibition of alcohol in the US
  • More general institutional changes

• References

The following sections are included:

• Introduction

• Model

• Dynamic Equilibrium and Comparative Dynamics

• Endogenous Horizon

• Conclusion

• Appendix: Proof of Comparative Dynamics of Equilibrium

• References

The following sections are included:

• Introduction

• A Model with a Variable Hierarchical Structure of Goods

• Individual Decision Problems and Equilibrium
  • Autarkical structures A and B
  • Structure C
  • Structure D
  • Structure E
  • Structure F
  • Structure G
  • Structures B',E',G'

• Concluding Remarks

• References

The following sections are included:

• Introduction

• The Model

• Corner Equilibria in Three Structures

• The General Equilibrium and its Comparative Statics

• Conclusions

• References

The following sections are included:

• Introduction

• Transaction Uncertainties, Risk Aversion, and Division of Labor

• Insurance and Division of Labor

• Conclusions

• Appendix

• References

The following sections are included:

• Introduction

• The Model

• Comparing Autarky and the Division of Labor
  • Autarky
  • Specialization

• Resource Endowment, Transaction Efficiency and Specialization

• Technology and Specialization

• Conclusions

• Appendix A: Proof of the Economies of Specialization in the Production of Each Good

• Appendix B: Solving for Corner Equilibria
  • Solving for the optimal decisions of x sellers
  • Solving for the optimal decisions of y sellers
  • Solving for the corner equilibrium of the structure with division of labor

• Appendix C: Proof of E∊ (0,1)

• Appendix D: Proof of the TFP Increase after the Division of Labor

• References

The following sections are included:

• Index