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On the Dynamic Efficiency of the Market System

Peter Funk ()

Discussion Paper Serie A from University of Bonn, Germany

Abstract: We introduce a framework of development in which the direction of change is determined endogenously. Which new products, which new qualities and which new techniques are introduced in the course of development is determined by the profitability of different potential innovations. We define a concept of long-run efficiency of development which formalizes a widespread notion of `dynamic efficiency'. The concept merely excludes persistent inefficiencies. We finally give conditions that guarantee long-run efficiency of laissez-faire development. This formalizes a popular claim about the dynamic efficiency of the market system, and, at the same time, makes more precise the limits to the claim.

Keywords: Endogenous Growth; Direction of Change; Dynamic Efficiency. (search for similar items in EconPapers)
JEL-codes: D50 D60 O12 O30 O33 (search for similar items in EconPapers)
Date: 1993-05
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