Toward a Theory of Impersonal Networking Decisions and Endogenous Structure of Division of Labor

Abstract

In the paper, an analytical framework with both increasing returns and transaction costs is developed to investigate the general equilibrium with endogenous specialization and division of labor. In this framework, the impersonal network of the division of labor emerges from the interactions among self-interested Walrasian decisions of ex ante identical individuals guided by the abstract price signals. Having proved the existence theorem of equilibrium for a general class of models, we can then show that the emergent network structure of the division of labor as such is efficient. With the analytical framework, the spirit of classical mainstream economics regarding the decentralized coordination of the division of labor can be resurrected in a modern body of inframarginal analysis (total cost-benefit analysis between corner solutions in addition to marginal analysis of each corner solution).

Keywords: Consumer-producer, General equilibrium, Increasing return to specialization, Large economies, Impersonal network of division of labor, Transaction cost

JEL Classification: D11, D50, D51