Structured Production Systems: Viability

TL;DR

This paper presents a new framework for analyzing equilibrium in structured production systems, emphasizing viability as a key condition and linking production architecture with economic sustainability.

Contribution

It introduces the concept of viability in structured production systems and characterizes conditions for their economic coherence and sustainability.

Findings

Acyclic production systems are always viable.

Prohibiting consumption goods as inputs for other consumption goods is necessary for viability.

The framework connects classical production theory with modern network economics.

Abstract

This paper introduces a novel framework for analysing equilibrium in structured production systems incorporating a static social division of labour by distinguishing between consumption goods traded in competitive markets and intermediate goods exchanged through bilateral relationships. We develop the concept of viability -- the requirement that all producers earn positive incomes -- as a foundational equilibrium prerequisite. Our main theoretical contribution establishes that acyclic production systems -- those without circular conversion processes among goods -- are always viable, a condition that implies coherence. We characterise completely viable systems through input restrictions demonstrating that prohibiting consumption goods as inputs for other consumption goods is necessary for ensuring viable prices exist for all consumption good price vectors. The analysis reveals fundamental relationships between production system architectural design and economic sustainability. The introduced framework bridges Leontief-Sraffa production theory with modern network economics while capturing institutional realities of contemporary production systems. This also results in a contribution of the literature on the existence of a positive output price system and the Hawkins-Simon condition.