Preface

Contents

Introduction

Intrinsic Relationship Between the Evolution of the Division of Labor and Other Economic Phenomena

The Implications of the Dichotomy Between Pure Consumers and Pure Producers for Economic Analysis

Why Economists Shifted Their Attention From the Economic Organization Problem to the Resource Allocation Problem

Diversifying the Frameworks of Economic Analysis

Part I: Economies and Diseconomies of Specialization

Analytical Frameworks of Economics

What is a Framework of Economic Analysis

Assessment of Quality of a Framework

The Framework in This Book

Economies of Specialization and Transaction Costs

A System of Production for a Consumer-producer

Preferences for Diverse Consumption and Transaction Costs

Individual Decision Problems

Equilibrium and Its Comparative Statics

Welfare Implications of Equilibrium

The Distinctive Features of Equilibrium in our Framework

The Pricing Mechanism and ex post Transaction Costs

A Bilateral Bargaining Model

The Endogenization of the Choice of the First Mover

Why the Market Emerges from the Division of Labor

The Bargaining Equilibrium with Unemployment

The Endogenization of the Principal-agent Relationship

Economies and Diseconomies of Information Asymmetry

Specialization and Economies of Information Asymmetry

Economies of Information Asymmetry

Dual Functions of the Price System: Coordinating the Division of Labor and Promoting Information Asymmetry

The Function of the Market in Exploiting Economies of Information Asymmetry

Part II: Rethinking Trade Theory and Development Economics

Why and How International Trade Emerges from Domestic Trade

Rethinking Trade Theory

Conflict Between Preferences for Diverse Consumption and Economies of Specialization

The Equilibrium Level of Division of Labor

Comparative Statics

Evolution of the Division of Labor Generated by Exogenous Evolution of Transaction Efficiency

Organizational Efficiency and the Function of the Market in Discovering the Efficient Pattern of Organization

Emergence of International Trade from Domestic Trade

Why do we need the market?

Unequal Income Distribution and Dual Economy

Proof of Lemma 2.1 for the Model in This Chapter

Emergence of Professional Middlemen and Urbanization

A Model with Trading Activities and Heterogeneous Parameters

Decisions on Being a Professional Middleman

Market Structures and Corner Equilibria

The Pareto Optimal Pattern of Trade and Economic Organization

How Does the Market Sort out the Efficient Pattern of Economic Organization?

Equilibrium Trade Pattern, Level of Division of Labor, and Urbanization

Emergence of Professional Middlemen and a Hierarchical Structure of Economic Organization and a Dual Structure Between the Urban and Rural Sectors

Proof of Lemma 6.2

Proof of Proposition 6.7

Endogenous Evolution of the Division of Labor

Evolution of the Division of Labor, the Accumulation of Human Capital, and Development of Endogenous Comparative Advantages

A Dynamic Model with Learning by Doing

Optimum Speed of Learning by Doing and Evolution of Endogenous Comparative Advantage

The Evolution of the Extent of the Market, Trade Dependence, Endogenous Comparative Advantages, and Economic Structure

Rethinking Development Economics and Growth Theory

Proof of Lemma 2.1 for the Dynamic Model

Concurrent Increases in Specialization and Consumption Variety

Why the Variety of Available Goods and Specialization Increase Concurrently

Tradeoffs among Economies of Specialization, Economies of Complementarity, and Transaction Costs

The Function of the Market in Determining the Efficient Variety of Available Consumer Goods

Implications of the Endogenization of Aggregate Demand

Part III: Rethinking Theory of the Firm and Economics of Property Rights

Why and How Firms Emerge from the Division of Labor

Why is the Institution of the Firm Needed?

Economies of Specialization in Roundabout Production

The Efficient Pattern of Economic Organization

The Institution of the Firm and the Structure of Residual Rights

Economies of Specialization, Economies of Division of Labor, and Economies of the Firm

Does the Structure of Residual Rights Make a Difference?

Function of the Market in Searching for Efficient Contractual Arrangements

Formalizing the Economics of Property Rights

A Tradeoff Between Economies of Specialization and Coordination Reliability

Concurrent Increases in Productivity, the Level of Division of Labor, and a Risk of Coordination Failure

The Invisible Hand and ``Market Failure''

The Extent of the Market and Rights Specified in a Contract vs. Rights to Contracting

Two Functions of the Market: Executing Exchanges and Keeping Pressure on the Incumbent Trader Partners

A Tradeoff Between Economies of Specialization and Coordination Reliability

Efficient Vagueness of Property Rights and Market Size

Possible Extensions and Applications

Part IV: Specialization and Hierarchical Structures of the Division of Labor

Emergence of New Producer Goods and Related New Technology

A Tradeoff Between Economies of Specialization and Economies of Complementarity

The Efficient Number of Producer Goods and Level of Specialization

Concurrent Changes in the Level of Division of Labor, Productivity, and Input Diversity

Changes in Economic Structure

Proof of Lemma 12.1

Economies of Roundaboutness and Industrialization

The Division of Labor and Roundabout Production

A Model with a Variable Hierarchical Structure of Goods

Corner Equilibria in Ten Market Structures

Concurrent Evolution of Specialization and Roundaboutness

Concurrent Evolution of Specialization, Roundaboutness, and Firms and Disappearance of Traditional Goods

The Structure with Goods z, y, v, x, and w

The Structures without Good y

Efficient Hierarchy and the Division of Labor

Why Can a Hierarchy Improve Efficiency?

A Centralized Hierarchy and the Division of Labor

A Decentralized Hierarchy and the Division of Labor

Evolution of the Hierarchical Structure of the Market

Part V: Complicated Dynamic Mechanisms Generating Endogenous Evolution of the Division of Labor

Entrepreneurship, Investment, and Experiments with Economic Organizations

The Efficient Pattern of the Division of Labor in a Walrasian Regime

Costs in Acquiring Information about the Efficient Pattern of the Division of Labor

Information Costs and Endogenous Evolution of the Division of Labor

Information Asymmetry, Entrepreneurship, and Investment

Investment and the Function of the Price System in Coordinating Experiments with Patterns of the Division of Labor

Solution of the Dynamic Programming Problem

Concurrently Endogenous Evolution of Specialization, Firms, and Product Diversity

A Dynamic Equilibrium Model with Learning by Doing and an Endogenous Number of Producer Goods

Dynamic Equilibrium Level of Specialization and Input Variety

Concurrent Evolution of Specialization, Variety of Producer Goods, and the Institution of the Firm

Proof of Lemma 16.1

Proof of Proposition 16.1

Proof of Proposition 16.2

Part VI: Empirical Evidence and Rethinking Macroeconomics

Why and How Money Emerges from the Division of Labor

Why Is Money Needed?

A Model Endogenizing the Monetary Regime

Efficient Level of Division of Labor and Monetary Regime

Implications of the Institution of the Firm for Monetary Regime

Proof of Lemma 17.1

The Division of Labor, Business Cycles, and Unemployment

Market Failure or Market Miracle?

The Relationship Between the Business Cycle and the Division of Labor

Cyclical vs. non-cyclical Corner Equilibria

General Price Level, Business Cycles, and Unemployment Rate

Emergence of Firms and Fiat Money from the Division of Labor

Testing the Theories in this Volume against Empirical Observations

Difficulties in Testing the Theories in this Volume

The Model and Underlying Theory

Measuring the Level of Division of Labor

Quantifying Efficiency in Specifying and Enforcing Property Rights

The Main Results

More Empirical Studies

Epilogue

References

Index