Inframarginal economics

Contents......Page 12
Preface......Page 8
1.1 What is Inframarginal Economics?......Page 22
1.2 Economic Analysis of Division of Labor – A Literature Review......Page 24
1.3 Inframarginal Economics vs. Neoclassical Economics......Page 35
1.4 Inframarginal Analysis of Division of Labor......Page 41
1.5 Structure of this Book......Page 44
Questions......Page 48
2.1 The Smithian Framework and Transaction Costs......Page 52
2.2 Configurations and Corner Solutions in the Smithian Framework......Page 55
2.3 The Optimum Resource Allocation for a Given Level and Pattern of Specialization......Page 63
2.4.1 Inframarginal analysis of demand and supply......Page 69
2.4.2 Inframarginal and marginal comparative statics of the decisions......Page 72
2.5 Neoclassical and Smithian Laws of Supply and Elasticity of Substitution......Page 73
Questions......Page 76
Exercises......Page 78
3.1 Neoclassical vs. Smithian General Equilibrium......Page 80
3.2 How Does the Market Coordinate the Division of Labor and Utilize Network Effects?.......Page 83
3.2.1 Structure, corner equilibrium, and resource allocation for a given structure of division of labor......Page 84
3.2.2 General equilibrium level and structure of division of labor – how does the market coordinate division of labor to utilize network effects......Page 89
3.3.1 Inframarginal vs. marginal comparative statics of Smithian general equilibrium......Page 93
3.3.2 Comparative statics of decisions vs. comparative statics of equilibrium......Page 98
3.3.3 The inappropriateness of marginal cost pricing and the difference between neoclassical and Smithian general equilibrium......Page 100
3.4.1 The first welfare theorem in the Smithian framework......Page 101
3.4.2 Economic development and disparity between the pareto optimum and the PPF......Page 103
3.4.3 Interdependence and conflict between efficient resource allocation and efficient organization......Page 105
Questions......Page 108
Exercises......Page 109
4.1 Theoretical Foundation of Inframarginal Economics......Page 112
4.2 A General Smithian Model with ex ante Different Consumer-producers......Page 114
4.3 The Existence of a Competitive Equilibrium......Page 117
4.4 Equilibrium Organism and Efficiency of the Invisible Hand in Coordinating Division of Labor......Page 126
Further Reading......Page 130
5.1 Why Can the Professional Middleman Make Money? What Are the Determinants of Business Success?......Page 132
5.2 A Model with Trading Activities and Heterogeneous Parameters......Page 133
5.3 The Decision to Be a Professional Middleman......Page 135
5.4.1 Basic vs. nonbasic structures......Page 138
5.4.2 Definitions of corner and general equilibria......Page 140
5.5 The Equilibrium Size of the Network of Division of Labor......Page 143
5.6 Emergence of Professional Middlemen and a Hierarchical Structure of Economic Organization......Page 147
5.7 Determinants of Trade Pattern and Successful Business......Page 148
Exercises......Page 153
6.1 What is the Institution of the Firm?......Page 156
6.2 Is It Fair to Have an Asymmetric Relationship between Boss and Employees? – The Story behind the Model......Page 159
6.3.1 Economies of roundabout production......Page 163
6.3.2 The corner equilibria in four structures......Page 165
6.3.3 General equilibrium structure of transactions and residual rights......Page 172
6.4 The Distinction Between ex ante and ex post Production Function and the Smithian Analysis of Demand and Supply......Page 177
6.5 Economies of Division of Labor, Economies of the Firm, and Coase Theorem......Page 179
6.6 The Economies of Division of Labor and the Size of Firms......Page 183
Further Reading......Page 187
Questions......Page 188
Exercises......Page 189
7.1 Bargaining Game, Strategic Behavior, Opportunistic Behavior......Page 192
7.2 Nash Bargaining Game......Page 194
7.3 Endogenous Transaction Costs caused by Information Asymmetry......Page 201
7.4 Alternating Offer Bargaining Games......Page 204
7.5 Dynamic Bargaining Game and the Division of Labor......Page 207
7.6 How Does Competition for a Greater Share of Gains from the Division of Labor Generate Endogenous Transaction Costs?......Page 210
7.7 How Can Endogenous Transaction Costs be Eliminated by Consideration of Reputation?......Page 213
7.8 Information Asymmetry, Dynamic Bargaining, and the Division of Labor......Page 215
7.9 Non-credible Commitment and Soft Budget Constraint......Page 223
Further Reading......Page 224
Exercises......Page 225
8.1 Endogenous Transaction Costs and Moral Hazard......Page 226
8.2 Neoclassical Principal-Agent Models......Page 229
8.3 A Smithian General Equilibrium Model of Principal-Agent......Page 235
8.4 The Trade off Between Endogenous Transaction Costs caused by Moral Hazard and Monitoring Cost and Incomplete Labor Contract......Page 243
Further Reading......Page 257
9.1 Endogenous Trade Theory and Endogenous Number of Consumer Goods......Page 258
9.2 A Smithian Trade Model with Fixed Learning Costs......Page 262
9.3 How are Demand and Supply Functions Determined by Individuals’ Levels of Specialization?......Page 263
9.4 Inframarginal Comparative Statics of the Optimum Decisions......Page 269
9.5 How is the Level of Division of Labor in Society Determined in the Market?......Page 270
9.6 Inframarginal Comparative Statics of General Equilibrium and Many Concurrent Economic Phenomena......Page 274
9.7 Emergence of International Trade from Domestic Trade......Page 282
9.8 Comovement of Division of Labor and Consumption Variety......Page 284
9.9 Trade off Between Economies of Specialization and Coordination Costs......Page 289
9.10 A Neoclassical Model Endogenizing the Number of Consumption Goods on the Basis of the Trade off Between Economies of Scale and Consumption Variety......Page 290
9.11 An Extended Murphy-Shleifer-Vishny Model with Compatibility between Economies of Scale and Competitive Market......Page 299
Exercises......Page 303
10.1 Endogenous vs. Exogenous Comparative Advantage......Page 304
10.2 A Ricardian Model with Exogenous Comparative Technological Advantage and Transaction Costs......Page 306
10.3 Analysis of Decisions vs. Analysis of Equilibrium......Page 315
10.4 Economic Development and Trade Policy......Page 324
10.5 Comparative Endowment Advantage and Trading efficiency......Page 335
Further Reading......Page 348
11.1 Implications of the Coexistence of Endogenous and Exogenous Comparative Advantage......Page 350
11.2 A Smithian Model with Dual Structure......Page 352
11.3 Trade Pattern and Income Distribution......Page 357
Further Reading......Page 367
Exercises......Page 368
12.1 Why and How Cities Emerge from the Division of Labor?......Page 372
12.2 Emergence of Cities and of the Dual Structure Between Urban and Rural Areas......Page 375
12.3 Why Can Geographical Concentration of Transactions Improve Trading Efficiency?......Page 381
12.4 Simultaneous Endogenization of Level of Division of Labor, Location Pattern of Residences, Geographical Pattern of Transactions, and Land Prices......Page 391
12.5 A Neoclassical Model of Urbanization based on the Trade off Between Economies of Scale and Transaction Costs......Page 405
Exercises......Page 410
13.1 Why Can Division of Labor Enlarge the Scope for the Efficient Trade off Between Working and Leisure?......Page 412
13.2 Why Can Leisure Time and Per Capita Consumption of Each Good Increase as Division of Labor Develops?......Page 416
13.3 Why Can a Crisis of Resource Shortage Promote Evolution in Division of Labor and Productivity?......Page 420
13.4 Implications of High Population Density for Evolution in Division of Labor through Its Effect on the Per Capita Expenditure on Infrastructure......Page 425
Exercises......Page 430
14.1 Uncertainties in Transactions and the Economics of Property Rights......Page 432
14.2 Trade offs among Economies of Division of Labor, Coordination Reliability, and Benefits of Competition......Page 437
14.3 Endogenization of Coordination Reliability in Each Transaction......Page 443
14.3.1 The Yang-Wills model endogenizing risk of coordination failure for each transaction......Page 444
14.3.2 The efficient extent of externalities......Page 446
14.3.3 Perfect competition is inefficient......Page 447
14.3.4 Risk of mass unemployment......Page 449
14.3.6 Economics of property rights and the soft budget constraint......Page 451
14.4 Substitution between Precise Enforcement of Property Rights and Competition......Page 456
14.5 Uncertainty and Risk Aversion......Page 464
14.6 A Model with Insurance and Endogenous Specialization in the Absence of Moral Hazard......Page 466
14.7 The Division of Labor and Endogenous Transaction Costs caused by Complete Insurance......Page 472
Further Reading......Page 484
Questions......Page 485
15.1 Smithian vs. Neoclassical Views on the Emergence of New Producer Goods and Related New Technology......Page 486
15.2 A Model with Endogenous Technical Progress, Endogenous Number of Producer Goods, and Endogenous Specialization......Page 489
15.3 The Efficient Number of Producer Goods and Level of Specialization......Page 491
15.4 The Corner Equilibria in 9 Structures......Page 494
15.5 Concurrent Changes in the Level of Division of Labor, Productivity, and Input Diversity......Page 499
15.6 Ex post Production Function, Emergence of New Machines, and Endogenous Technical Progress......Page 501
15.7 Changes in Economic Structure and Topological Properties of Economic Organism......Page 503
15.8 Evolution in the Number of Producer Goods and Economic Development......Page 505
Questions......Page 513
Exercises......Page 514
16.1 The Features of Industrialization......Page 516
16.2 A General Equilibrium Model Endogenizing Production Roundaboutness......Page 522
16.3 Corner Equilibria and Emergence of New Industry......Page 524
16.4 General Equilibrium and Industrialization......Page 529
16.5 Changes in the Income Shares of the Industrial and Agricultural Sectors......Page 533
16.6 The Number of Possible Structures of Transactions Increases More Than Proportionally as Division of Labor Evolves in Roundabout Production......Page 536
Further Reading......Page 539
Questions......Page 540
Exercises......Page 545
17.1 The Theory of Hierarchy......Page 548
17.2 One Way Centralized Hierarchy......Page 552
17.3 A Decentralized Hierarchy of Transactions and the Division of Labor......Page 556
17.4 Configurations and Market Structures......Page 562
17.5 The General Equilibrium and Its Inframarginal Comparative Statics......Page 571
17.6 Network Hierarchy of Cities and Division of Labor......Page 574
17.6.1 Consumer-producers, cities, and layers of a hierarchy of cities......Page 575
17.6.2 Two types of transaction costs......Page 577
17.6.3 The optimal number of layers in a hierarchical structure......Page 581
Further Reading......Page 583
Questions......Page 584
Exercises......Page 585
18.1 Economies of Specialized Learning by Doing and Endogenous Evolution in Division of Labor......Page 586
18.2 A Smithian Dynamic Model with Learning by Doing......Page 591
18.3.1 The function of contracts......Page 593
18.3.2 An individual’s dynamic decision problem......Page 595
18.3.3 Dynamic equilibrium......Page 597
18.4 Endogenous Evolution of the Extent of the Market, Trade Dependence, Endogenous Comparative Advantages, and Economic Structure......Page 611
18.5 Empirical Evidences and Rethinking Development Economics and Endogenous Growth Theory......Page 613
Appendix 18.1: The Relationship between the Control Theory and Calculus of Variations......Page 623
Further Reading......Page 624
Exercises......Page 625
19.1 How Can We Simultaneously Endogenize Evolution in Division of Labor and in the Number of Producer Goods?......Page 626
19.2 A Dynamic Equilibrium Model with Learning by Doing and an Endogenous Number of Producer Goods......Page 628
19.3 Dynamic Equilibrium Level of Specialization and Input Variety......Page 631
19.4 Concurrent Evolution of Specialization, Variety of Producer Goods, and the Institution of the Firm......Page 641
Appendix 19.1: Proof of Lemma 19.1......Page 647
Appendix 19.2: Proof of Proposition 19.1......Page 649
Appendix 19.3: Proof of Proposition 19.2......Page 652
Exercises......Page 654
20.1 How Does Organization Knowledge Acquired by Society Determine Economic Development?......Page 656
20.2 A Static Model with Endogenous Length of Roundabout Production Chain and Endogenous Division of Labor......Page 664
20.3 Interactions Between Dynamic Decisions and Evolution in Organization Information......Page 666
20.4 Walrasian Sequential Equilibrium and Concurrent Evolution in Organization Information and Division of Labor.......Page 672
Questions......Page 688
Exercises......Page 691
21.1 Neoclassical Theory of Investment and Saving......Page 694
21.2 Neoclassical Models of Self-Saving and Interpersonal Loans......Page 700
21.3 Smithian Theory of Investment and Savings......Page 706
21.3.1 Configuration sequence and structure sequence......Page 708
21.3.2 Dynamic corner equilibria in 16 structure sequences......Page 711
21.4 Investment, Capital, and Division of Labor in Roundabout Production......Page 715
21.4.1 Dynamic general equilibrium......Page 716
21.4.2 Non-topological properties of economic growth and sudden decline of interest rates......Page 722
21.4.3 Endogenous decision horizon and effect of liberalization reforms on opportunities for lucrative investment......Page 725
Further Reading......Page 727
Questions......Page 728
22.1 Neoclassical vs. Smithian Theories of Money......Page 730
22.2 A Smithian Model of Endogenous Monetary Regime......Page 735
22.3 Possible Structures and Monetary Regimes......Page 737
Further Reading......Page 748
Exercises......Page 749
23.1 Rethinking Macroeconomics......Page 752
23.2 Long-run Regular Efficient Business Cycles, Cyclical Unemployment, Long-run Economic Growth, and Division of Labor in Producing Durable Goods......Page 762
23.3 A Smithian Dynamic Equilibrium Model of Business Cycles and Unemployment......Page 768
23.4.1 Regime specification, configurations and market structures......Page 771
23.4.2 The dynamic corner equilibrium in autarky......Page 772
23.4.3 Market structure C......Page 774
23.4.4 Market structure P......Page 777
23.4.5 Welfare and policy implications of the model......Page 781
23.5 General Price Level, Business Cycles, and Unemployment Rate......Page 782
23.6 Emergence of Firms and Fiat Money from the Division of Labor......Page 786
23.7 Mass Unemployment and the Stability of the Network of Division of Labor......Page 790
Further Reading......Page 798
24.1 The Role of Infrastructure Expenditure, Monetary and Fiscal Policies on the Evolution of Division of Labor......Page 800
24.2 Infrastructure Expenditure and the Evolution of Division of Labor......Page 805
24.3 Macroeconomic Policies and the Evolution of Division of Labor......Page 816
24.3.1 Income-tax financing......Page 819
24.3.2 Money financing (seigniorage)......Page 821
24.3.3 Income-tax financing versus money financing......Page 823
Exercises......Page 824
25.1 Inframarginal Analysis, Endogenous Transaction Cost caused by Externality, New Institutional Economics, and Smithian Models of Political Economies......Page 826
25.2 Inframarginal Analysis of the Evolution of the State......Page 831
25.3 Inframarginal Analysis of Effects of Political Monopoly on the Extent of the Market......Page 837
Further Reading......Page 847
26.1 Impersonal Networking Decisions, Franchising Networks and e-Business......Page 848
26.2 A Smithian Model of Product Bundling......Page 851
26.3 A Smithian Model of Franchising Networks......Page 862
Further Reading......Page 870
Bibliography......Page 872
Index......Page 911