No Mere Tautology: The Division of Labor is Limited by the Division of Labor
49 Pages Posted: 11 Sep 2017 Last revised: 12 Dec 2017
Date Written: December 10, 2017
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 about the cost and value of more extensive specialization fail to emerge. Ideas are what make further divisions of the division of labor—and thus economic growth—either possible. Conversely, a lack of ideas make further divisions of labor and economic growth impossible.
Keywords: growth theory, theory of the firm, experimental economics, specialization, increasing returns, transaction costs
JEL Classification: C92, D23, L20, O40
Suggested Citation: Suggested Citation