Division of Labour: Increasing Returns at the Economy Level

Abstract

Increasing returns at the economy level through the division of labour is analyzed, focusing on the Yang–Ng framework of inframarginal analysis. The central trade-off is between the economies of specialization and the required higher transaction costs. The resulting higher role of entrepreneurship and importance of organizational (in contrast to allocational) efficiency of the network of division of labour are also discussed. Some welfare economic issues and some policy implications are outlined.