The Core of an Economy with an Endogenous Social Division of Labour

TL;DR

This paper develops a theoretical framework for the core of an economy with endogenous social division of labour, establishing its relation to competitive equilibria and incorporating self-organisation into barter processes.

Contribution

It extends core theory to economies with endogenous social division of labour, linking it to competitive equilibria and self-organisation mechanisms.

Findings

Core can be founded on deviations of coalitions of arbitrary size.

Core and competitive equilibria are equivalent in continuum economies.

Self-organisation can be incorporated into barter processes via Core equivalence.

Abstract

This paper considers the core of a competitive market economy with an endogenous social division of labour. The theory is founded on the notion of a "consumer-producer", who consumes as well as produces commodities. First, we show that the Core of such an economy with an endogenous social division of labour can be founded on deviations of coalitions of arbitrary size, extending the seminal insights of Vind and Schmeidler for pure exchange economies. Furthermore, we establish the equivalence between the Core and the set of competitive equilibria for continuum economies with an endogenous social division of labour. Our analysis also concludes that self-organisation in a social division of labour can be incorporated into the Edgeworthian barter process directly. This is formulated as a Core equivalence result stated for a Structured Core concept based on renegotiations among fully specialised economic agents, i.e., coalitions that use only fully developed internal divisions of labour. Our approach bridges the gap between standard economies with social production and coalition production economies. Therefore, a more straightforward and natural interpretation of coalitional improvement and the Core can be developed than for coalition production economies.