Non-constant Returns, Pareto Optimality and Competitive Equilibrium

David Laibman

Review of Political Economy, 2001, vol. 13, issue 4, 471-481

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.

Date: 2001
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DOI: 10.1080/09538250120099962

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