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The Assumption of Constant Returns to Scale

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  • Hicks, John

Abstract

Nicholas Kaldor was right to maintain that this assumption is unrealistic, but that does not mean that it is useless. There are propositions that can be proved assuming it, which would never have been found without it, but that look as if they are independent of it. Two examples: (1) Paul Samuelson's factor-price equalization theorem in international trade and (2) the author's theory of relations between factors in production (" elasticity of substitution" in a modern form). P-and q-substitutes (complements) must be distinguished. Weakly related factors are p-substitutes and q-complements. This is the only case when no more than two factors are present. Otherwise, two factors (out of many) may be strong substitutes (substitutes both ways) or strong complements (complements both ways). The excluded case, when they would be p-complements and q-substitutes, appears, in the presence of scale economies, to be excluded a fortiori. Copyright 1989 by Oxford University Press.

Suggested Citation

  • Hicks, John, 1989. "The Assumption of Constant Returns to Scale," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 13(1), pages 9-17, March.
    • Handle: RePEc:oup:cambje:v:13:y:1989:i:1:p:9-17
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    Cited by:

    1. Knaap, T., 1998. "A survey of complementaries in growth and location theories," Research Report 98C44, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Alam, M. Shahid, 2013. "Constant Returns to Scale: Can the Neoclassical Economy Exist?," MPRA Paper 45153, University Library of Munich, Germany.
    3. Carcillo, S. & Reiffers, V., 2000. "La critique d'Ad Hocite en economie - L'exemple des Theories de la croissance," Papiers d'Economie Mathématique et Applications 2000.23, Université Panthéon-Sorbonne (Paris 1).
    4. Jacques-Laurent Ravix, 1997. "Fondements critiques pour une analyse de la dynamique industrielle : la méthode de Allyn Young," Revue Économique, Programme National Persée, vol. 48(4), pages 965-988.
    5. repec:dgr:rugsom:98c44 is not listed on IDEAS
    6. Sumit Majumdar, 1999. "Comparative Organizational Characteristics of Indian State-Owned Enterprises," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 15(2), pages 165-182, September.
    7. M. Shahid Alam, 2016. "Commodities in Economics: Loving or Hating Complexity," Economic Thought, World Economics Association, vol. 5(1), pages 1-1, March.

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