Efficiency invites Divide and Coercion in the Age of Increasing Returns to Scale

Youngsheng Xu and Naoki Yoshihara ()
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Youngsheng Xu: Georgia State University

No SDES-2019-12, Working Papers from Kochi University of Technology, School of Economics and Management

Abstract: In the presence of (at least locally) increasing returns to scale technologies, the paper asks the question: does there exist an economic system which implements Pareto ecient allocations and respects the voluntary participation principle? To answer this question, the paper formulates an economic system as an allocation rule under economies with non-convex production possibility sets, and proposes a few weaker axioms to represent the voluntary participation principle. Then, the paper shows that any Pareto ecient allocation rule satis es none of the axioms of the voluntary participation principle. The result suggests that pursuing Pareto eciency in the presence of increasing returns to scale technologies leads to a dictatorial allocation rule, or forces someone to participate in the economic system without any guarantee of a minimal living standard.

Keywords: increasing returns to scale technologies; Pareto eciency; allocation rule; individual rationality; minimal autonomy (search for similar items in EconPapers)
JEL-codes: D0 D2 D3 D5 D6 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2019-11, Revised 2019-11
New Economics Papers: this item is included in nep-eff and nep-ore
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Published in SDE Series, November 2019, pages 1-14

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http://www.souken.kochi-tech.ac.jp/seido/wp/SDES-2019-12.pdf First version, 2019 (application/pdf)

Related works:
Working Paper: Efficiency Invites Divide and Coercion in the Age of Increasing Returns to Scale (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:kch:wpaper:sdes-2019-12

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