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Centralized Hierarchy within a Firm and Decentralized Hierarchy in the Market

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Increasing Returns and Economic Analysis

Abstract

The purpose of this chapter is twofold. First, we develop a general equilibrium model based on corner solutions to simultaneously endogenize four aspects of the division of labour: individuals’ level of specialization, the length of the roundabout production chain, the number of goods in each link of the chain and the development of the institution of the firm. Second, the equilibrium model is used to endogenize the dividing line between the hierarchical structure of division of labour within the firm and the hierarchical structure of the network of transactions in the market.

We thank Joshua Gans, Yew-Kwang Ng and Robin Marris for helpful discussions. All remaining errors are our own responsibility. Because of constraints of length, Appendices 1, 2, and 3 of the original paper are omitted; we apologize for the inconvenience. Interested readers can get a full version on request.

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Authors
  1. Heling Shi
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  2. Xiaokai Yang
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Editor information

Editors and Affiliations

  1. Stanford University, USA

    Kenneth J. Arrow (Joan Kenney Professor of Economics Emeritus) (Joan Kenney Professor of Economics Emeritus)

  2. Chinese University of Hong Kong, Hong Kong

    Yew-Kwang Ng (Professor of Economics) (Professor of Economics)

  3. Monash University, Australia

    Yew-Kwang Ng (Professor of Economics) & Xiaokai Yang (Reader in Economics) (Professor of Economics) &  (Reader in Economics)

Copyright information

© 1998 Heling Shi and Xiaokai Yang

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Cite this chapter

Shi, H., Yang, X. (1998). Centralized Hierarchy within a Firm and Decentralized Hierarchy in the Market. In: Arrow, K.J., Ng, YK., Yang, X. (eds) Increasing Returns and Economic Analysis. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-26255-7_8

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