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The role of pecuniary external economies and increasing returns of scale in the theory of increasing returns

Sandilands, R.J. (2006) The role of pecuniary external economies and increasing returns of scale in the theory of increasing returns. In: ESHET Conference, 2006-04-01, Porto.

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This paper investigates some issues relating to the phenomenon of increasing returns: (1) What is the role of economies of scale in the theory of increasing returns? (2) Do pecuniary external economies lead to market failure and justify intervention in the market mechanism? (3) Are increasing returns sector-specific or generalised, and if they are sector specific, is it possible to identify and promote these sectors from a policy point of view? We argue that economies of scale are incidental to the broader phenomenon of increasing returns and therefore cannot adequately explain their existence. On the second question, we argue that the presence of pecuniary external economies is characteristic of a well-functioning market system rather than an indication of its failure. Finally, increasing returns are generalised, so that policies intended to identify and promote specific sectors will tend to distort intersectoral relationships. Sector-specific polices should not be based on the logic of increasing returns, but should aim to correct sector-specific handicaps.

Item type: Conference or Workshop Item (Paper)
ID code: 15374
Notes: Also published in Review of Political Economy, v. 18, n. 2, 2006. DOI: 10.1080/09538250600571361
Keywords: increasing returns, pecuniary external economies, Economic Theory
Subjects: Social Sciences > Economic Theory
Department: Strathclyde Business School > Economics
Depositing user: Mrs Kirsty Fontanella
Date Deposited: 11 Feb 2010 18:08
Last modified: 11 Dec 2015 05:49
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