IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Comparative Advantage: From an Individual to the Economy

Listed author(s):
  • Rajsic, Predrag

This paper identifies an internal inconsistency in the Heckscher-Ohlin (H-O) models of international exchange. The inconsistency stems from assuming homogeneity of inputs within a population. This assumption annihilates individual comparative advantage, benefits from exchange and, consequently, existence of autarky prices. In order to remove this inconsistency, I build a two-good multi-individual model by using the microeconomic concept of individual comparative advantage stemming from differences in endowments of qualitatively heterogeneous inputs. The model shows how differences in the distribution of individual production possibilities result in individual specialization, exchange and differences in autarky prices between hypothetically isolated economies. Next, the effect of preference heterogeneity, learning by doing and supply restrictions is examined. In addition to bringing internal logical consistency into the theory of cross-border exchange by demonstrating how price differences between hypothetically isolated economies can be derived from the general neoclassical and Austrian subjectivist principles, this paper addresses the criticisms raised by the labour value theorists. The model can be refined to include comparative advantage in the production of capital goods and differences in the distribution of ownership over natural resources and capital goods. This theoretical approach to inter-local exchange has important policy implications. While the H-O framework lends itself well to conflicting interventionist policies of production allocation based on different interpretations of ambiguous aggregate data, the alternative microeconomic approach acknowledges the importance of the institutional setting in which individual comparative advantage, unknown to an external observer, is discovered, enhanced, and expressed.

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:
Download Restriction: no

Paper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61299.

in new window

Date of creation: 2010
Handle: RePEc:ags:aaea10:61299
Contact details of provider: Postal:
555 East Wells Street, Suite 1100, Milwaukee, Wisconsin 53202

Phone: (414) 918-3190
Fax: (414) 276-3349
Web page:

More information through EDIRC

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

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

When requesting a correction, please mention this item's handle: RePEc:ags:aaea10:61299. 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: (AgEcon Search)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.