Equivalence between Labour-Managed Economy and Capitalist Economy and Firms' Indivisibility

Pierre-André Jouvet

No 1996002, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: The critical role of free entry to correct inherent deviance behavior has been stressed by Vanek (1970), Meade (1972) amongst others. The equivalence theorem (Drèze (1976)) defines that labour and entrepreneurial management both lead to the same Pareto optimal equilibrium provided that there is perfect competition and perfect mobility of factors. Nevertheless) if we consider the number of firms to be an integer, the labour market admits two kinds of equilibria but the maximizing profit economy only one. Thus, there no longer exists an equivalence between the two economies.

Date: 1996-02-01
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