Non-constant Returns,Pareto Optimality and Competitive Equilibrium |
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Authors: | David Laibman |
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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. |
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