Welfare Analysis of a Market Model with External Increasing Returns and Differentiated Commodities ()
ABSTRACT
Markets with increasing returns resulting from the
positive external effects of production (hereafter external increasing
returns) have been discussed from both positive and normative points of
view. We present a complete general equilibrium model in which external
increasing returns prevail within industries to produce differentiated commodities
which are represented by real valued functions. Firms in an industry produce
the commodity characteristics which are values of each commodity
function. This formulation of differentiated commodities causes the equilibrium
to be characterized as the solution of a variational problem. In order
to answer this mathematically formidable question, we utilize the delta
function of Dirac for the calculus of variations to be done in an elementary
way. To our knowledge, this is the first time the delta function appears in
economic analysis.
Share and Cite:
Suzuki, T. (2017) Welfare Analysis of a Market Model with External Increasing Returns and Differentiated Commodities.
Theoretical Economics Letters,
7, 63-78. doi:
10.4236/tel.2017.71007.