Specialization and Economic Organization : A New Classical Microeconomic Framework

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ISBN: 9780444886989 | 0444886982
Cover: Hardcover
Copyright: 2/1/1993

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As the subtitle indicates, this book presents a new classical microeconomic framework. It develops a new unifying analytical framework that covers topics concerning international trade, development economics, growth theory, transaction costs economics, comparative economics, management economics, urban economics, industrial organization, and macroeconomics. The new classical microeconomic framework is used to bring the analysis of economies of specialization, the division of labor, and the structure of economic organization into the central place of economics.

Preface

vii

Contents

Introduction

(1)

Intrinsic Relationship Between the Evolution of the Division of Labor and Other Economic Phenomena

(2)

The Implications of the Dichotomy Between Pure Consumers and Pure Producers for Economic Analysis

(1)

Why Economists Shifted Their Attention From the Economic Organization Problem to the Resource Allocation Problem

(8)

Diversifying the Frameworks of Economic Analysis

(6)

Part I: Economies and Diseconomies of Specialization

Analytical Frameworks of Economics

(21)

What is a Framework of Economic Analysis

(3)

Assessment of Quality of a Framework

(8)

The Framework in This Book

(10)

Economies of Specialization and Transaction Costs

(32)

A System of Production for a Consumer-producer

(11)

Preferences for Diverse Consumption and Transaction Costs

(2)

Individual Decision Problems

(7)

Equilibrium and Its Comparative Statics

(8)

Welfare Implications of Equilibrium

(2)

The Distinctive Features of Equilibrium in our Framework

(2)

The Pricing Mechanism and ex post Transaction Costs

(23)

A Bilateral Bargaining Model

(9)

The Endogenization of the Choice of the First Mover

(6)

Why the Market Emerges from the Division of Labor

(4)

The Bargaining Equilibrium with Unemployment

(2)

The Endogenization of the Principal-agent Relationship

(2)

Economies and Diseconomies of Information Asymmetry

(23)

Specialization and Economies of Information Asymmetry

(2)

Economies of Information Asymmetry

(3)

Dual Functions of the Price System: Coordinating the Division of Labor and Promoting Information Asymmetry

(16)

The Function of the Market in Exploiting Economies of Information Asymmetry

115

(2)

Part II: Rethinking Trade Theory and Development Economics

Why and How International Trade Emerges from Domestic Trade

117

(30)

Rethinking Trade Theory

117

(1)

Conflict Between Preferences for Diverse Consumption and Economies of Specialization

118

(2)

The Equilibrium Level of Division of Labor

120

(7)

Comparative Statics

127

(7)

Evolution of the Division of Labor Generated by Exogenous Evolution of Transaction Efficiency

134

(2)

Organizational Efficiency and the Function of the Market in Discovering the Efficient Pattern of Organization

136

(2)

Emergence of International Trade from Domestic Trade

138

(4)

Why do we need the market?

142

(2)

Unequal Income Distribution and Dual Economy

144

(3)

Proof of Lemma 2.1 for the Model in This Chapter

145

(2)

Emergence of Professional Middlemen and Urbanization

147

(29)

A Model with Trading Activities and Heterogeneous Parameters

147

(2)

Decisions on Being a Professional Middleman

149

(2)

Market Structures and Corner Equilibria

151

(5)

The Pareto Optimal Pattern of Trade and Economic Organization

156

(5)

How Does the Market Sort out the Efficient Pattern of Economic Organization?

161

(4)

Equilibrium Trade Pattern, Level of Division of Labor, and Urbanization

165

(3)

Emergence of Professional Middlemen and a Hierarchical Structure of Economic Organization and a Dual Structure Between the Urban and Rural Sectors

168

(8)

Proof of Lemma 6.2

172

(1)

Proof of Proposition 6.7

173

(3)

Endogenous Evolution of the Division of Labor

176

(26)

Evolution of the Division of Labor, the Accumulation of Human Capital, and Development of Endogenous Comparative Advantages

176

(2)

A Dynamic Model with Learning by Doing

178

(3)

Optimum Speed of Learning by Doing and Evolution of Endogenous Comparative Advantage

181

(13)

The Evolution of the Extent of the Market, Trade Dependence, Endogenous Comparative Advantages, and Economic Structure

194

(2)

Rethinking Development Economics and Growth Theory

196

(6)

Proof of Lemma 2.1 for the Dynamic Model

201

(1)

Concurrent Increases in Specialization and Consumption Variety

202

(12)

Why the Variety of Available Goods and Specialization Increase Concurrently

202

(2)

Tradeoffs among Economies of Specialization, Economies of Complementarity, and Transaction Costs

204

(2)

The Function of the Market in Determining the Efficient Variety of Available Consumer Goods

206

(2)

Implications of the Endogenization of Aggregate Demand

208

(6)

Part III: Rethinking Theory of the Firm and Economics of Property Rights

Why and How Firms Emerge from the Division of Labor

214

(20)

Why is the Institution of the Firm Needed?

214

(1)

Economies of Specialization in Roundabout Production

215

(1)

The Efficient Pattern of Economic Organization

216

(2)

The Institution of the Firm and the Structure of Residual Rights

218

(5)

Economies of Specialization, Economies of Division of Labor, and Economies of the Firm

223

(5)

Does the Structure of Residual Rights Make a Difference?

228

(6)

Function of the Market in Searching for Efficient Contractual Arrangements

234

(23)

Formalizing the Economics of Property Rights

234

(2)

A Tradeoff Between Economies of Specialization and Coordination Reliability

236

(11)

Concurrent Increases in Productivity, the Level of Division of Labor, and a Risk of Coordination Failure

247

(5)

The Invisible Hand and ``Market Failure''

252

(5)

The Extent of the Market and Rights Specified in a Contract vs. Rights to Contracting

257

(20)

Two Functions of the Market: Executing Exchanges and Keeping Pressure on the Incumbent Trader Partners

257

(2)

A Tradeoff Between Economies of Specialization and Coordination Reliability

259

(5)

Efficient Vagueness of Property Rights and Market Size

264

(10)

Possible Extensions and Applications

274

(3)

Part IV: Specialization and Hierarchical Structures of the Division of Labor

Emergence of New Producer Goods and Related New Technology

277

(16)

A Tradeoff Between Economies of Specialization and Economies of Complementarity

278

(1)

The Efficient Number of Producer Goods and Level of Specialization

279

(6)

Concurrent Changes in the Level of Division of Labor, Productivity, and Input Diversity

285

(3)

Changes in Economic Structure

288

(5)

Proof of Lemma 12.1

291

(2)

Economies of Roundaboutness and Industrialization

293

(24)

The Division of Labor and Roundabout Production

293

(2)

A Model with a Variable Hierarchical Structure of Goods

295

(3)

Corner Equilibria in Ten Market Structures

298

(7)

Concurrent Evolution of Specialization and Roundaboutness

305

(4)

Concurrent Evolution of Specialization, Roundaboutness, and Firms and Disappearance of Traditional Goods

309

(8)

The Structure with Goods z, y, v, x, and w

315

(1)

The Structures without Good y

315

(2)

Efficient Hierarchy and the Division of Labor

317

(23)

Why Can a Hierarchy Improve Efficiency?

317

(2)

A Centralized Hierarchy and the Division of Labor

319

(4)

A Decentralized Hierarchy and the Division of Labor

323

(13)

Evolution of the Hierarchical Structure of the Market

336

(4)

Part V: Complicated Dynamic Mechanisms Generating Endogenous Evolution of the Division of Labor

Entrepreneurship, Investment, and Experiments with Economic Organizations

340

(26)

The Efficient Pattern of the Division of Labor in a Walrasian Regime

341

(1)

Costs in Acquiring Information about the Efficient Pattern of the Division of Labor

342

(4)

Information Costs and Endogenous Evolution of the Division of Labor

346

(10)

Information Asymmetry, Entrepreneurship, and Investment

356

(5)

Investment and the Function of the Price System in Coordinating Experiments with Patterns of the Division of Labor

361

(5)

Solution of the Dynamic Programming Problem

363

(3)

Concurrently Endogenous Evolution of Specialization, Firms, and Product Diversity

366

(25)

A Dynamic Equilibrium Model with Learning by Doing and an Endogenous Number of Producer Goods

367

(3)

Dynamic Equilibrium Level of Specialization and Input Variety

370

(10)

Concurrent Evolution of Specialization, Variety of Producer Goods, and the Institution of the Firm

380

(11)

Proof of Lemma 16.1

385

(1)

Proof of Proposition 16.1

386

(3)

Proof of Proposition 16.2

389

(2)

Part VI: Empirical Evidence and Rethinking Macroeconomics

Why and How Money Emerges from the Division of Labor

391

(20)

Why Is Money Needed?

391

(3)

A Model Endogenizing the Monetary Regime

394

(2)

Efficient Level of Division of Labor and Monetary Regime

396

(9)

Implications of the Institution of the Firm for Monetary Regime

405

(6)

Proof of Lemma 17.1

408

(3)

The Division of Labor, Business Cycles, and Unemployment

411

(23)

Market Failure or Market Miracle?

411

(3)

The Relationship Between the Business Cycle and the Division of Labor

414

(2)

Cyclical vs. non-cyclical Corner Equilibria

416

(12)

General Price Level, Business Cycles, and Unemployment Rate

428

(4)

Emergence of Firms and Fiat Money from the Division of Labor

432

(2)

Testing the Theories in this Volume against Empirical Observations

434

(37)

Difficulties in Testing the Theories in this Volume

434

(4)

The Model and Underlying Theory

438

(3)

Measuring the Level of Division of Labor

441

(2)

Quantifying Efficiency in Specifying and Enforcing Property Rights

443

(24)

The Main Results

467

(1)

More Empirical Studies

468

(3)

Epilogue

471

(11)

References

482

(11)

Index

493

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Specialization and Economic Organization : A New Classical Microeconomic Framework

Summary

Table of Contents

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Specialization and Economic Organization : A New Classical Microeconomic Framework

Summary

Table of Contents

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