Stability, Specialization and Social Recognition

Abstract

Yang's theory of economic specialization under increasing returns to scale (Yang 2001) is a formal development of the fundamental Smith-Young theorem on the extent of the market and the social division of labor. In this theory specializationand, thus, the social division of labor-is firmly embedded within a system of perfectly competitive markets. This leaves unresolved whether and how such development processes are possible in economies based on more primitive, nonmarket organizations. In this paper we introduce a general relational model of economic interaction. Within this non-market environment we discuss the emergence of economic specialization and ultimately of economic trade and a social division of labor. We base our approach on three stages in organizational development: the presence of a stable relational structure; the presence of relational trust and subjective specialization; and, finally, the emergence of objective specialization through the social recognition of subjectively defined economic roles.

On Socio-Economic Roles and Specialization

“…In Gilles et al (2006) we start at an even more primitive level of reasoning. Before there is actual specialization, there are consumer-producers with simple skills on which these specializations can be based.…”

“…However, in Yang's framework this process is individual-specific, i.e., economic individuals are not allowed to learn from each other. In Gilles et al (2006), we go beyond this restriction by allowing learning processes among engaged individuals.…”

“…In such economies there might not emerge an equilibrium in the form of a stable matching pattern. (For an explicit example of such an economy we refer to Example 3.4 in Gilles et al (2006).) Here we investigate the sufficient conditions for the existence of such stable matching patterns.…”

“…Each role corresponds to some objectively defined specialization of that individual. For a detailed development of the mathematical model we refer to Gilles, Lazarova and Ruys (2006) on which the current paper is based.…”

“…* This paper is dedicated to the memory of Xiakai Yang, whose work on specialization and the social division of labor inspired us in constructing the theory as presented and discussed in this paper. This paper is an extended compilation of the formal theory developed in Gilles, Lazarova and Ruys (2006). …”