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Division of Labour and Innovation with Indivisibilities: Lessons from A. Smith

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  • Krzysztof Makarski

    (National Bank of Poland
    Warsaw School of Economics)

Abstract

We study division of labour, innovation, and economic growth in a world with indivisibilities. In order to increase the division of labour, more specialized, labour saving capital varieties must be invented, which can be done only subject to a minimum size requirement. Thus, the division of labour is limited by the size of the market. Furthermore, the division of labour has a major impact on labour productivity. Due to the minimum size requirement, producers want to charge nonlinear prices (two part tariffs). In the model we obtain interesting dynamics. Depending on the parameters our economy can grow unboundedly, can grow up to a certain (even very high) level and then stagnate, or can be stuck in a poverty trap.

Suggested Citation

  • Krzysztof Makarski, 2012. "Division of Labour and Innovation with Indivisibilities: Lessons from A. Smith," Bank i Kredyt, Narodowy Bank Polski, vol. 43(6), pages 7-28.
    • Handle: RePEc:nbp:nbpbik:v:43:y:2012:i:6:p:7-28
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; indivisibility; division of labour; extent of the market;
    All these keywords.

    JEL classification:

    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General

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