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On the optimal capital : labour ratios in towns when demands for outputs are stochastic

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  • Jan Serck-Hanssen

    (UiO - University of Oslo)

Abstract

One of the advantages of larger towns with a diversified industrial structure compared to smaller towns with less diversified industries, is that larger towns may utilize more efficiently production factors which are mobile within the town but immobile between the town and the outside world. If demand for outputs of the various industries is stochastic and not too strongly correlated,the corresponding demand for mobile production factors may in a certain sense even out to a larger extent in larger than in smaller towns. This is a consequence of the law of large numbers. In larger towns one may avoid in an average sense both that a large relative part of the mobile production factors are unemployed because of lack of demand and that there is a large surplus demand for these factors in relation to the supply. Due to the latter property,one may also avoid that a large part of the immobile factors like specialized machinery is unutilized due to lack of supply of mobile factors.

Suggested Citation

  • Jan Serck-Hanssen, 1981. "On the optimal capital : labour ratios in towns when demands for outputs are stochastic," Working Papers hal-01542363, HAL.
    • Handle: RePEc:hal:wpaper:hal-01542363
    Note: View the original document on HAL open archive server: https://hal.science/hal-01542363
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    References listed on IDEAS

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    1. Roger Guesnerie & Thierry Montbrial, 1974. "Allocation Under Uncertainty: a survey," International Economic Association Series, in: Jacques H. Drèze (ed.), Allocation under Uncertainty: Equilibrium and Optimality, chapter 4, pages 53-70, Palgrave Macmillan.
    2. Jacques H. Drèze (ed.), 1974. "Allocation under Uncertainty: Equilibrium and Optimality," International Economic Association Series, Palgrave Macmillan, number 978-1-349-01989-2.
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