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Non-constant Returns, Pareto Optimality and Competitive Equilibrium

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  • David Laibman

Abstract

Competitive equilibrium is not Pareto optimal if returns to scale are not constant, except in special and accidental circumstances. This result is demonstrated using a classical production model; it holds quite generally and independently of all other sources of Pareto inefficiency, such as externalities, imperfect information and quantity constraints. It establishes a general and ubiquitous basis for critique of the 'invisible hand' ideology, which still dominates both the textbooks and wider reaches of social thought.

Suggested Citation

  • David Laibman, 2001. "Non-constant Returns, Pareto Optimality and Competitive Equilibrium," Review of Political Economy, Taylor & Francis Journals, vol. 13(4), pages 471-481.
    • Handle: RePEc:taf:revpoe:v:13:y:2001:i:4:p:471-481
    DOI: 10.1080/09538250120099962
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    References listed on IDEAS

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    1. Young, Allyn A., 1928. "Increasing Returns and Economic Progress," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 38, pages 527-542.
    2. Heinz D. Kurz & Neri Salvadori (ed.), 1998. "The Elgar Companion to Classical Economics," Books, Edward Elgar Publishing, volume 0, number 851.
    3. Kurz,Heinz D. & Salvadori,Neri, 1997. "Theory of Production," Cambridge Books, Cambridge University Press, number 9780521588676.
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