STOCHASTIC DEMAND, SPECIALIZATION, AND INCREASING RETURNS

Yong J. Yoon ()
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Yong J. Yoon: Department of Economics and Center for Study of Public Choice, George Mason University, Fairfax, VA 22030, USA

Division of Labor & Transaction Costs (DLTC), 2008, vol. 03, issue 01, 1-5

Abstract: Adam Smith pointed out that specialization makes individuals more productive through improved dexterity, judgment, and innovation. The theory of increasing returns incorporated in this paper does not depend on the presence of such intra-personal enhancement of productivity. Instead, we note that specialization reduces the costs of meeting stochastic demand that is infrequent and probabilistically uncertain. Specialization characterized as coordinating convention clarifies and extends the economic logic in Smith's interpretation of conditions required for economic progress.

Keywords: Specialization; stochastic demand; coordination convention; extent of the market (search for similar items in EconPapers)
JEL-codes: C62 D E1 F F11 F12 F16 J2 J3 L O (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0219871108000367

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