The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns

R. Chandra; R.J. Sandilands

doi:10.1080/09538250600571361

The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns

R. Chandra, R.J. Sandilands

Economics

Research output: Contribution to journal › Article

12 Citations (Scopus)

Abstract

This paper investigates some issues relating to the phenomenon of increasing returns: (1) What is the role of economies of scale in the theory of increasing returns? (2) Do pecuniary external economies lead to market failure and justify intervention in the market mechanism? (3) Are increasing returns sector-specific or generalised, and if they are sector specific, is it possible to identify and promote these sectors from a policy point of view? We argue that economies of scale are incidental to the broader phenomenon of increasing returns and therefore cannot adequately explain their existence. On the second question, we argue that the presence of pecuniary external economies is characteristic of a well-functioning market system rather than an indication of its failure. Finally, increasing returns are generalised, so that policies intended to identify and promote specific sectors will tend to distort intersectoral relationships. Sector-specific polices should not be based on the logic of increasing returns, but should aim to correct sector-specific handicaps.

Original language	English
Pages (from-to)	193-208
Number of pages	15
Journal	Review of Political Economy
Volume	18
Issue number	2
DOIs	https://doi.org/10.1080/09538250600571361
Publication status	Published - 2006

Fingerprint

economy

market mechanism

market failure

Handicap

External economies

Increasing returns

Increasing returns to scale

indication

police

market

Economies of scale

Keywords

economics
markets
economic growth
econometrics

Cite this

Chandra, R., & Sandilands, R. J. (2006). The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns. Review of Political Economy, 18(2), 193-208. https://doi.org/10.1080/09538250600571361

Chandra, R. ; Sandilands, R.J. / The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns. In: Review of Political Economy. 2006 ; Vol. 18, No. 2. pp. 193-208.

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Chandra, R & Sandilands, RJ 2006, 'The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns', Review of Political Economy, vol. 18, no. 2, pp. 193-208. https://doi.org/10.1080/09538250600571361

The role of pecuniary external economies and increasing returns to scale in the theory of increasing returns. / Chandra, R.; Sandilands, R.J.

In: Review of Political Economy, Vol. 18, No. 2, 2006, p. 193-208.

Research output: Contribution to journal › Article

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AU - Sandilands, R.J.

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AB - This paper investigates some issues relating to the phenomenon of increasing returns: (1) What is the role of economies of scale in the theory of increasing returns? (2) Do pecuniary external economies lead to market failure and justify intervention in the market mechanism? (3) Are increasing returns sector-specific or generalised, and if they are sector specific, is it possible to identify and promote these sectors from a policy point of view? We argue that economies of scale are incidental to the broader phenomenon of increasing returns and therefore cannot adequately explain their existence. On the second question, we argue that the presence of pecuniary external economies is characteristic of a well-functioning market system rather than an indication of its failure. Finally, increasing returns are generalised, so that policies intended to identify and promote specific sectors will tend to distort intersectoral relationships. Sector-specific polices should not be based on the logic of increasing returns, but should aim to correct sector-specific handicaps.

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