Preface To: Stochastic Demand, Specialization, and Increasing Returns
Division of Labour & Transaction Costs (DLTC): A Journal for the Society of Inframarginal Economics
Posted: 20 Oct 2009 Last revised: 3 May 2010
Date Written: June 1, 2008
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
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