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Publication - Professor Eugenio Proto

    Smithian growth through creative organization


    Legros, P, Newman, AF & Proto, E, 2014, ‘Smithian growth through creative organization’. Review of Economics and Statistics, vol 96., pp. 796-811


    We model technological progress as an external effect of organizational design, focusing on how factories, based on labor division, could spawn the Industrial Revolution. Dividing labor, as Adam Smith argued, facilitates invention by observers of production processes. However, entrepreneurs cannot internalize this benefit and choose labor division to facilitate monitoring. Equilibrium with few entrepreneurs features low wage shares, and high specialization, but a limited market for innovations. Conversely, with many entrepreneurs, there is a large market for innovation but little specialization because of highwage shares. Technological progress therefore occurs with a moderate scarcity of entrepreneurs. Institutional improvements affect growth ambiguously.

    Full details in the University publications repository