On the maximizing behavior of a monopoly planner |
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Authors: | Judith Thornton and Donn L Leber |
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Institution: | (1) University of Washington, Washington, USA |
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Abstract: | Conclusions The model developed here leads to some useful conclusions. If we consider an economy without trade where the supply of inputs
varies in response to the level of current real consumption paid to inputs, then the relevant social input constraint for
the planners is not a single production possibilities locus, but the planners feasibility constraint developed here. This
constraint traces the locus of points on a family of production possibility surfaces that would be generated by each alternative
quantity of inputs. The rate of product transformation along the planners' feasibility function will differ from the rate
of product transformation along the production possibilities locus by an amount that reflects the marginal input supply.
In such an economy, whenever the arguments of the planners' welfare function are not identical with the arguments of the input
supply function, the necessary conditions for the planners' optimum will be non-optimal with reference to usual market socialist
welfare criteria. At equilibrium, the marginal rate of product substitution in the planners' welfare function will not equal
the marginal rate of product transformation on the production possibilities function.
In addition, when the tastes of planners and of consumers diverge, the necessary conditions for the planners' optimum imply
the exercise of some monopoly power by the planners. For given input supply conditions and given production functions, the
magnitude of the monopoly effect increases to a limiting value as the diverge of tastes between planners and consumers increases. |
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