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The Invisible Hand as an Emergent Property

Author

Listed:
  • Giorgio Fabbri
  • Davide Fiaschi
  • Cristiano Ricci

Abstract

We develop a multi-sector competitive economy where firms reallocate across sectors under myopic profit-seeking behaviour and quadratic reallocation costs. The dynamic path, formalised as a gradient flow in Wasserstein space, yields two emergent properties:(i) short-run equilibria can be seen as solutions to sequential aggregate optimisation problems; and (ii) the long-run equilibrium is globally stable and efficient. These properties are robust to several extensions, though may fail under fixed reallocation costs. Drawing on EU firm-level data (2018-2023), we find convergence in sectoral profit rates but no labour productivity, with moderate substitutability, small intra-sectoral externalities, and no significant reallocation fixed costs.

Suggested Citation

  • Giorgio Fabbri & Davide Fiaschi & Cristiano Ricci, 2025. "The Invisible Hand as an Emergent Property," Working Papers 2025-07, Grenoble Applied Economics Laboratory (GAEL).
    • Handle: RePEc:gbl:wpaper:2025-07
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    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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