On the Microeconomics of Specialization

Robert P. Gilles
Department of Economics
Virginia Polytechnic Institute and State
University
Blacksburg, VA 24061
rgilles@vt.edu

Dimitrios Diamantaras
Department of Economics
Temple University
Philadelphia, PA 19122
dimitris@sbm.temple.edu

April 2002
Virginia Tech Economics
Working Paper E2002¡V3

Abstract
We discuss several propositions that characterize the optimal production and
consumption plans of a consumer-producer operating in an economy of perfectly
competitive markets ¡X possibly subject to transaction costs. First, we show that
under rather sparse conditions on production technologies and consumer preferences there exists a solution to the fundamental consumer-producer optimization problem if transaction costs are asymptotically high enough. Second, under strengthened properties on transaction technologies and consumer preferences there exists such a solution in the absence of transaction costs. Third, we discuss the conditions under which consumer-producers specialize to different degrees. These results generalize the existing results in the literature.

Inframarginal Economics Society www.inframarginal.com