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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. Heinz D. Kurz & Neri Salvadori (ed.), 1998. "The Elgar Companion to Classical Economics," Books, Edward Elgar Publishing, volume 0, number 851.
    2. Kurz,Heinz D. & Salvadori,Neri, 1997. "Theory of Production," Cambridge Books, Cambridge University Press, number 9780521588676, September.
    3. 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.
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