Market Economies with an Endogenous Social Division of Labour

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Abstract

We consider a general equilibrium model of a competitive market economy in which production is conducted through an endogenous social division of labour. We represent economic decision makers as “consumer‐producers”, who consume as well as produce commodities. In this approach, the emergence of a non‐trivial social division of labour is guided by Increasing Returns to Specialisation in production. Under Increasing Returns to Specialisation, we show existence of competitive equilibria, the two fundamental theorems of welfare economics, and characterise these equilibria. Markets equilibrate through the adjustment of the social division of labour; the production technologies completely determine the equilibrium prices.
Original languageEnglish
Pages (from-to)821-849
JournalInternational Economic Review
Volume60
Issue number2
Early online date21 Sep 2018
DOIs
Publication statusPublished - May 2019

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