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On the Dynamic Efficiency of the Market System

  • Peter Funk

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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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
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  3. Funk,Peter, 1993. "The direction of technological change," Discussion Paper Serie A 393, University of Bonn, Germany.
  4. Funk,Peter, 1991. "Bertrand and Walras euilibria in large economies," Discussion Paper Serie A 348, University of Bonn, Germany.
  5. 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.
  6. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
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