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Evolutionary and Institutional Economics Review

, Volume 10, Issue 2, pp 269–294 | Cite as

A Theory of Profit and Competition

  • Alberto Battistini
Article
  • 57 Downloads

Abstract

Starting from the observation that surplus-value is almost always due to the collective undertaking of non-additively separable human capital investments, this paper proposes a theory of the institutional structure of production in the Coasean definition of firms and markets. Rather than being based on the extension of the logic of exchange to property rights, however, the paper attempts to combine institutional and evolutionary elements in light of the classic issues of value and distribution. The main result, in effect, is that monopoly profit is not the only meaningful notion of profit besides the value of individual contribution, and consequently that free entry and competition do not wipe it out. The reason is that in this context, the incumbent’s profit does not arise from some form of scarcity but from the collective nature of the production process. Therefore, the entrant has no incentives to undercut because he can earn the same profit by doing exactly the same thing. Naturally, this fairly favourable condition should not be taken for granted since, when non additive separability is combined with wealth effects, this kind of profit may give rise to structurally inefficient conflicts over the terms of both its production and distribution. In particular, this is shown to happen when the type of investments is such that the individual participation constraint ensuring that investments are made is satisfied at minimum cost when expressed in terms of the amount workers can earn from independent participation in the production process (rather than in terms of the value of the product). In this case, it turns out that profit will be appropriated by entrepreneurs (rather than shared), property rights will be concentrated (rather than distributed), and the subsequent development of the techno-economic paradigm of which the investments are meant to form a stylized representation is inhibited (rather than favoured).

Keywords

team production human capital methodological individualism multi-level selection property rights 

JEL

A12 D20 D40 

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Copyright information

© Japan Association for Evolutionary Economics 2013

Authors and Affiliations

  1. 1.Department of Economics and StatisticsUniversity of SienaSienaItaly

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