On the Dynamic Efficiency of the Market System

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On the Dynamic Efficiency of the Market System

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Peter Funk

Abstract

We introduce a framework of development in which the direction of change is determined endogenously. Which new products, which new qualities and which new techniques are introduced in the course of development is determined by the profitability of different potential innovations. We define a concept of long-run efficiency of development which formalizes a widespread notion of `dynamic efficiency'. The concept merely excludes persistent inefficiencies. We finally give conditions that guarantee long-run efficiency of laissez-faire development. This formalizes a popular claim about the dynamic efficiency of the market system, and, at the same time, makes more precise the limits to the claim.

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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 507.

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Length: 28
Date of creation: May 1993
Date of revision:
Handle: RePEc:bon:bonsfa:507

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Find related papers by JEL classification:
D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
D60 - Microeconomics - - Welfare Economics - - - General
O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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Novshek, William & Sonnenschein, Hugo, 1980. "Small efficient scale as a foundation for Walrasian equilibrium," Journal of Economic Theory, Elsevier, vol. 22(2), pages 243-255, April. [Downloadable!] (restricted)
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Other versions:
- Aghion, P. & Howitt, P., 1990. "A Model Of Growth Through Creative Destruction," DELTA Working Papers 90-12, DELTA (Ecole normale supérieure).
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
- Philippe Aghion & Peter Howitt, 1990. "A Model of Growth Through Creative Destruction," NBER Working Papers 3223, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
- Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," Working papers 527, Massachusetts Institute of Technology (MIT), Department of Economics.
Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October. [Downloadable!] (restricted)
Other versions:
- Paul Romer, 1991. "Endogenous Technological Change," NBER Working Papers 3210, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)

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