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

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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.

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Abstract

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
    Dates:
    Date
    Event
    April 2006
    Published
    Notes:Also published in Review of Political Economy, v. 18, n. 2, 2006. DOI: 10.1080/09538250600571361
    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 Nov 2024 16:21
    Related URLs:
    URI:https://strathprints.strath.ac.uk/id/eprint/15374
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