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Coordination of economic activity: An example

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Part of the Studies in Economic Design book series (DESI)

Abstract

In this paper we consider issues of organization of economic activity, especially coordination of productive activity. We begin with a classic question; “Which economic activities are (or should be) coordinated by markets, and which by other means?” “Other means” usually refers to administrative or bureaucratic mechanisms; sometimes the word “hierarchies” is used. This paper presents a formal model focused on productive activities, in which this question can be asked. The paper also presents an example — a specialization of the model — in which efficient coordination means just-in-time production. The example has two cases. In Case 1 it is shown that the market mechanism cannot achieve efficient coordination, even though there are market equilibria. There are alternative mechanisms, especially one called a direct mechanism, that does achieve efficient coordination. In Case 2 both types of mechanism achieve efficient coordination, but the market mechanism has higher informational costs. The two cases are the same except in one respect. Therefore the different outcomes in the two cases cannot be due to properties that are the same in both cases.

Keywords

Competitive Market Production Unit Market Mechanism Coordination Mechanism Competitive Equilibrium 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2003

Authors and Affiliations

  1. 1.Center for Mathematical Studies in Economics and Management ScienceNorthwestern UniversityEvanstonUSA

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