Increasing Returns and Economic Analysis

478 Pages·1998·35.586 MB·English

by  Kenneth J. Arrow, Yew-Kwang Ng, Xiaokai Yang (eds.)

INCREASING RETURNS AND ECONOMIC ANALYSIS
Increasing Returns and
Economic Analysis
Edited by
Kenneth J. Arrow
Joan Kenney ProfessorofEconomicsEmeritus
Stanford University
Yew-Kwang Ng
ProfessorofEconomics
Chinese UniversityofHongKongand
Monash University
and
Xiaokai Yang
ReaderinEconomics
Monosh University
FirstpublishedinGreatBritain1998by
MACMILLANPRESSLTD
Houndmills,Basingstoke,HampshireRG21 6XS and London
Companiesandrepresentativesthroughouttheworld
Acataloguerecordforthis book isavailablefrom theBritishLibrary.
ISBN978-1-349-26257-1 ISBN978-1-349-26255-7(eBook)
DOI 10.1007/978-1-349-26255-7
First published inthe UnitedStatesofAmerica 1998by
ST.MARTIN'SPRESS, INC.•
ScholarlyandReferenceDivision,
175FifthAvenue,New York, N.Y.10010
ISBN 978-0-312-17720-1
LibraryofCongressCataloging-in-PublicationData
Increasingreturns andeconomicanalysisIeditedbyKennethJ.Arrow,
Yew-KwangNg,andXiaokai Yang.
p. cm.
Includesbibliographicalreferencesandindex,
ISBN 978-0-312-17720-1
I.Competition,Imperfecl. 2.Economiesofscale. 3.Classical
schoolofeconomics. I.Arrow,KennethJoseph, 1921- 11.Ng,
Yew-Kwang. 11I.Yang,Xiaokai,
HB238.I53 1997
330.I5'3-dc2I 97-21582
CIP
Selectionand editorialmatter©KennethJ.Arrow,Yew-KwangNgand
Xiaokai Yang 1998
Chapter1©Xiaokai YangandSiang Ng 1998;Chapter6©HelingShiandXiaokaiYang
1998;Chapter8©Kar-yiuWong and Xiaokai Yang 1998;Chapter11©Yew-KwangNg
1998;Chapter 16©JianguoWang and Yew-KwangNg 1998;Chapter18©KennethJ.
Arrow 1998
Chapters2-5.7,9-10,12-15, 17,19-21 andallcomments©MacmillanPressLId1998
Softcoverreprintofthe hardcover Istedition 1998978-0-333-67844-2
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No paragraph ofthis publication may be reproduced, copied or transmitted save with
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This book is printed on paper suitable for recycling and made from fully managed and
sustainedforest sources.
10 9 8 7 6 5 4 3 2 1
07 06 05 04 03 02 01 00 99 98
Contents
List 01Figures viii
List 01Tables x
Preface xi
Acknowledgements Xlii
Notes on the Contributors xiv
Introduction xix
Part 1 Specialization, Organization and Growth:
New Classical Economics
Specialization and Division of Labour: A Survey 3
Xiaokai Yang and Siang Ng
Comment 64
James M. Buchanan
Comment 66
JeffBorland
2 Specialization and the Emergence and the Value of Money 71
Wenli Cheng
3 Productivity, Investment in Infrastructure and Population
Size: Formalizing the Theory of Ester Boserup 90
c.r. Cyrus Chu and Yao-Chou Tsai
4 The Inframarginal Analysis of Demand and Supply and
the Relationship between a Minimum Level of
Consumption and the Division of Labour 108
Monchi Lio
5 Economies of Specialization and Trade 127
Siang Ng
6 Centralized Hierarchy within a Firm and Decentralized
Hierarchy in the Market 145
Heling Shi and Xiaokai fang
v
vi Contents
7 An Analytical Framework of Consumer-Producers,
Economies of Specialization and Transaction Costs 170
Mei Wen
8 An Extended Ethier Model with the Tradeoff between
Economies of Scale and Transaction Costs 186
Kar-yiu Wong and Xiaokai fang
9 Policy Analysis in a Dynamic Model with Endogenous
Specialization 205
Junxi Zhang
Part 2 Economies of Scale and Monopolistic Competition
10 Increasing Returns, Constant Returns and Micro-Macro
Economics 219
Robin Marris
11 Non-Neutrality of Money under Non-Perfeet Competition:
Why Do Economists Fail to See the Possibility? 232
Yew-Kwang Ng
Comment 253
Robin Marris
12 ADynamie Model of Monopolistic Competition with
Trade Externalities and Fiscal Policy 255
Kee Nam Cheung
Comment 278
Chun-Sin Hwang
13 Industrialization Policy and the •Big Push' 280
Joshua Gans
Comment 305
Philip A. Trostel
14 Economies of Scale and Imperfeet Competition
in an Applied General Equilibrium Model of the
Australian Economy 307
Kaludura Abayasiri-Silva and Mark Horridge
Comment 335
Peter B. Dixon
Contents vii
15 Variety, Spillovers and Market Structure in a Model of
Endogenous Technological Change 338
Pietro F. Peretto
16 Pursuit of Relative Conspicuous Consumption in
Monopolistic Competition 367
Jianguo Wang and Yew-Kwang Ng
17 Economic Fluctuations and Non-Neutrality of Money
based upon Imperfect Competition 383
Xiangkang Yin
Part 3 Information, Trade and Resources
18 Innovation and Increasing Returns to Scale 403
Kenneth J. Arrow
19 Variable Returns to Scale and Factor Price Equalization 409
Murray C. Kemp, Masayuki Okawa and Makoto Tawada
20 The Stolper-Samuelson Theorem in Models with
Economies of Scale 413
Peter J. Lloyd and Albert G. Schweinberger
Comment 430
Pasquale M. Sgro
21 Variable Returns to Scale, Resources and Population 432
John D. Pitchford
Name Index 445
Subject Index 450
List of Figures
1.1 Individual and aggregate PPF 12
1.2 Configurations, structures and evolution of the division
of labour 30
2.1 Feasible economic structures 77
4.1 Autarky and division of labour 120
5.1 Two-country international trade 137
6.1 Structures without the firm 153
6.2 Structures with the firm 158
6.3 The evolution of economic structures 164
8.1 Evolution of specialization and diversity 200
11.1 Perfeet competition 234
11.2 Non-perfect competition 235
11.3 Economy with union power 237
11.4 Entry of new firms 238
11.5 Increase in nominal aggregate demand 239
11.6 Profit-constrained revenue-maximizer 243
11.7 Tax reduction 245
12.1 Unique equilibrium point 264
12.2 Transactions externalities 264
12.3 Economy approaching full capacity 265
12.4 Multiple equilibria 265
12.5 Transaction externalities and multiple equilibria 266
12.6 Functions conducive to multiple equilibria 266
12.7 Monopoly power of firms 267
12.8 Different levels of transaction externalities 267
12.9 Interaction between externalities and monopoly power 268
12.10 Alternating stable and unstable equilibria 269
12.11 Balance budget expansion 271
12.12 Balance budget reduction 272
14.1 The HPP flows data base 309
14.2 Structure of production 312
14.3 Structure of investment and consumer demand 313
14.4 Unit costs decreasing with output 315
14.5 User's love of variety 318
14.6 Short-run and long-run Lerner pricing equilibria 322
14.7 ZPP and price setting lines 336
viii
List 0/Figures ix
15.1 General equilibrium with an exogenous number of
firms 352
15.2 General equilibrium with an endogenous number of firms 358
15.3 Heuristic dynamics and equilibrium selection 361
17.1 Equilibrium of aggregate demand and supply 389
17.2 The dynamic process of economic fluctuation 394
19.1 The FPE region in a 2 X 2 world economy 410
21.1 Indifference curves 437
21.2 Fertility choice 437
21.3 Production function 438
21.4 The growth path 439
21.5 Child quality and growth 441
List of Tables
2.1 Corner equilibrium structures 80
2.2 General equilibrium structures: a computer simulation 83
4.1 Corner solutions for six configurations 114
4.2 Corner equilibria in six structures 116
4.3 General equilibrium and its comparative statics 117
6.1 The corner equilibria in structures without the firm 155
6.2 The corner equilibria in structures with the firm 159
14.1 Commodity and industry classification 310
14.2 Effect of tariff changes on import prices 324
14.3 Differences between simulations 324
14.4 Short-run simulations 325
14.5 Long-run simulations 325
14.6 Results of short-run simulations of a tariff cut 327
14.7 Results of long-run simulations of a tariff cut 329
x