The Invisible Hand as an Emergent Property

Giorgio Fabbri, Davide Fiaschi and Cristiano Ricci

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: We develop a multi-sector competitive economy where firms reallocate across sectors under myopic profit-seeking behaviour and quadratic reallocation costs. The dynamic path, formalised as a gradient flow in Wasserstein space, yields two emergent properties:(i) short-run equilibria can be seen as solutions to sequential aggregate optimisation problems; and (ii) the long-run equilibrium is globally stable and efficient. These properties are robust to several extensions, though may fail under fixed reallocation costs. Drawing on EU firm-level data (2018-2023), we find convergence in sectoral profit rates but no labour productivity, with moderate substitutability, small intra-sectoral externalities, and no significant reallocation fixed costs.

Keywords: Out-of-Equilibrium Dynamics; Positive General Equilibrium Theory; Multi-Sector Economy; Myopic Firms; Firm Heterogeneity; Intra-Industry Reallocation; Wasserstein Space; Gradient Flow. (search for similar items in EconPapers)
JEL-codes: C61 C62 D24 D50 D92 (search for similar items in EconPapers)
Pages: 69 pages
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Related works:
Working Paper: The Invisible Hand as an Emergent Property (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:gbl:wpaper:2025-07

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