Advanced Search
MyIDEAS: Login to save this article or follow this journal

Increasing Returns And The Smith Dilemma

Contents:

Author Info

  • YEW-KWANG NG

    ()
    (Department of Economics, Monash University, Clayton, Victoria, Australia 3800, Australia)

  • DINGSHENG ZHANG

    ()
    (Department of Economics, Monash University, Clayton, Victoria, Australia 3800, Australia)

Abstract

The Smith dilemma refers to the inconsistency ("strictly an error") between the Smith theory on the efficiency of the market based on the absence of increasing returns and the Smith theorem on the facilitation of the economies of specialization (which gives rise to increasing returns) by the extent of the market. This paper argues that, despite the prevalence of increasing returns, Adam Smith was largely right on the efficiency of the invisible hand and hence that the Smith dilemma does not really exist. Ignoring separate issues such as environmental disruption, the market is very efficient in coordinating the allocation of resources even in the presence of increasing returns. The efficiency due to the automatic and incentive-compatible adjustments, free trade and enterprise (entry/exit) largely prevails. The Dixit–Stiglitz model shows that the free-entry market equilibrium coincides with the (non-negative profit) constrained optimum when the elasticity of substitution between products is constant. For non-constant elasticities, the divergences between the market equilibrium and the constrained optimum in output levels, in the numbers of firms and in utility levels are shown to be small.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0217590805002116
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0217590805002116
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal The Singapore Economic Review.

Volume (Year): 50 (2005)
Issue (Month): sp ()
Pages: 407-416

as in new window
Handle: RePEc:wsi:serxxx:v:50:y:2005:i:sp:p:407-416

Contact details of provider:
Web page: http://www.worldscinet.com/ser/ser.shtml

Order Information:
Email:

Related research

Keywords: Increasing returns; the Smith dilemma; invisible hand; economic efficiency; market;

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Andreas Wagener, 2010. "Ng, Y.-K.: Increasing returns and economic efficiency," Journal of Economics, Springer, Springer, vol. 100(1), pages 85-89, May.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:wsi:serxxx:v:50:y:2005:i:sp:p:407-416. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.