No Mere Tautology: The Division of Labor is Limited by the Division of Labor

52 Pages Posted: 11 Sep 2017 Last revised: 25 Jul 2018

Andrew Smyth

Marquette University - Department of Economics

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy; Chapman University - Economic Science Institute (ESI); Chapman University, The Dale E. Fowler School of Law

Date Written: July 15, 2018

Abstract

We explore the intersection of growth theory and the theory of the firm with an experiment. Economic growth is possible in our experiment when agents specialize to exploit increasing returns. We find that low opportunity costs are sufficient for Marshallian internal economies, but that Marshallian external economies are slow to emerge in four probing treatment conditions. Transaction costs do not hamper external economies as we anticipated prior to collecting data. When external economies falter, it is because new ideas of more extensive specialization fail to emerge. Ideas make further divisions of the division of labor—and thus economic growth—possible. Conversely, a lack of ideas make further divisions of labor and economic growth impossible. Synthesized, our data reveal how the likelihood of new ideas is inseparably tied to the existing extent of specialization.

Keywords: growth theory, theory of the firm, experimental economics, specialization, increasing returns, transaction costs

JEL Classification: C92, D23, L20, O40

Suggested Citation

Smyth, Andrew and Wilson, Bart J., No Mere Tautology: The Division of Labor is Limited by the Division of Labor (July 15, 2018). Available at SSRN: https://ssrn.com/abstract=3033357 or http://dx.doi.org/10.2139/ssrn.3033357

Andrew Smyth (Contact Author)

Marquette University - Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Bart J. Wilson

Chapman University - Smith Institute for Political Economy and Philosophy ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www1.chapman.edu/~bjwilson/

Chapman University - Economic Science Institute (ESI) ( email )

One University Drive
Orange, CA 92866
United States
(714) 628-7306 (Phone)

Chapman University, The Dale E. Fowler School of Law ( email )

One University Drive
Orange, CA 92866-1099
United States
(714) 628-7306 (Phone)

HOME PAGE: http://www1.chapman.edu/~bjwilson/

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