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Increasing Returns and Efficiency$
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Martine Quinzii

Print publication date: 1993

Print ISBN-13: 9780195065534

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780195065534.001.0001

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(p.153) 7 Conclusion
Increasing Returns and Efficiency

Martine Quinzii

Oxford University Press

The general equilibrium analysis presented in this book shows that there are even more problems in using marginal cost pricing with increasing returns technologies than has been discussed at the time of the “marginal cost pricing controversy,” but also that, in some circumstances, the problems can be solved. The earlier literature raised objections to the income redistribution induced by financing the deficit of public firms through income taxes, and questioned the incentives that a subsidized public firm would have to minimize costs. Once a good can be produced with increasing returns, its total production should be supervised by a central agency to avoid inefficient use of different units of production. Such an agency cannot rely on equalization of marginal costs to ensure productive efficiency. In cases where the economies of scale in the production of a good are large enough to justify its production by a public sector, it seems unlikely that there exist alternative techniques available to the private sector to produce small quantities at the same marginal cost.

Keywords:   general equilibrium, marginal-cost pricing, increasing returns, income redistribution, marginal costs, productive efficiency, economies, private sector, incentives, public sector

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