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On the Dynamic Efficiency of the Market System

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  • Peter Funk

Abstract

We introduce a framework of development in which the direction of change is determined endogenously. Which new products, which new qualities and which new techniques are introduced in the course of development is determined by the profitability of different potential innovations. We define a concept of long-run efficiency of development which formalizes a widespread notion of `dynamic efficiency'. The concept merely excludes persistent inefficiencies. We finally give conditions that guarantee long-run efficiency of laissez-faire development. This formalizes a popular claim about the dynamic efficiency of the market system, and, at the same time, makes more precise the limits to the claim.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa507.ps
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 507.

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Length: 28
Date of creation: May 1993
Date of revision:
Handle: RePEc:bon:bonsfa:507

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de

Related research

Keywords: Endogenous Growth; Direction of Change; Dynamic Efficiency.;

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References

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  1. Paul Romer, 1989. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc.
  2. Funk Peter, 1995. "Bertrand and Walras Equilibria in Large Economies," Journal of Economic Theory, Elsevier, vol. 67(2), pages 436-466, December.
  3. Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
  4. Funk,Peter, 1993. "The direction of technological change," Discussion Paper Serie A 393, University of Bonn, Germany.
  5. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  6. Novshek, William & Sonnenschein, Hugo, 1980. "Small efficient scale as a foundation for Walrasian equilibrium," Journal of Economic Theory, Elsevier, vol. 22(2), pages 243-255, April.
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Cited by:
  1. Bischoff, Ivo, 2002. "Efficiency-enhancing effects of private and collective enterprises in transitional China," Discussion Papers 9, Justus Liebig University Giessen, Center for international Development and Environmental Research (ZEU).

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