Increasing Returns & Efficiency
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Increasing returns to scale is an area in economics that is becoming more important in the literature. The economic phenomenon of increasing returns presents serious conceptual difficulties for the traditional competitive theory of resource allocation. While most firms exhibit constant or decreasing returns to scale, some firms manufacture products whose technology permits increasing returns to scale that are large relative to the market. These goods are an important component of economic activity in a modern economy and are typically commodities produced either by a public sector or, as in the US, by regulated utilities. The author analyses increasing returns using general equilibrium theory to take into account the interactions between production in the public and the private sectors and the effects of financing the public sector on the redistribution of income.
Increasing returns to scale is an area in economics that has recently attracted much attention. The commodities produced with technology exhibiting increasing returns constitute an important component of economic activity in a modern economy. They are typically commodities produced either by a public sector or, as in the United States, by regulated utilities. The central issue in this book addresses how to manage the public, or regulated, sector of the economy in order to achieve efficient resource allocation while maintaining the advantages of a decentralized market mechanism within the private sector. Quinzii's novel approach lies in the analysis of increasing returns by consistently using the framework of general equilibrium theory. This approach permits the welfare implications of pricing policies in the public sector without neglecting to take into account the interactions between production in the public and in the private sector, an important component of these being the effects on the distribution of income created by the need to finance the public sector. A significant contribution of this work is its analysis of the problem of financing the public sector in a way in which it is acceptable not only to individual agents but also to all sub-groups of agents as well. The discussion and exposition of key ideas have been kept as intuitive as possible, with simple examples and a geometric approach to illustrate basic points and to motivate the readers' own intuition. While based on the research of the author, the work draws extensively on recent literature on increasing returns. Quinzii has made a special effort to relate the latest developments in the field of increasing returnswith earlier economic literature, in particular the marginal price cost pricing controversy of the 1940s.
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