Recently, a growing literature, known as the new classical economics, attempts to resurrect the classical economic thoughts on division of labor within an analytical framework inherited from neoclassical economics. The paper inspects the feasibility of this approach and finds that the current analytical framework of the new classical economics is not able to spell out how individuals' decisions on specialization are coordinated and how division of labor is realized in a large and decentralized economy. Evolutionary dynamics are then introduced into the existing models. Using a simple economy for example, the paper shows that the equilibrium network of division of labor predicted by the new classical economics is supported by evolutionary stability and can be realized by the outcome of evolutionary processes, such as Replicator Dynamics. Mutation is important in the realization of division of labor since it provides an approach for the economy to escape from an initial state of autarky. The study implies that the inherent evolutionary process of the market constructs an ???invisible hand???, which can spontaneously coordinate self-interested individuals' decentralized decisions on specialization to discover an efficient order of division of labor in a large economy.
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Paper provided by Monash University, Department of Economics in its series Monash Economics Working Papers with number
12/09.
Find related papers by JEL classification: C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D40 - Microeconomics - - Market Structure and Pricing - - - General D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
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