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Constant returns to scale and economic theories of value

Naqvi, Nadeem (2007): Constant returns to scale and economic theories of value.

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Abstract

Jointly with Erkko Etula, Paul Samuelson [2006] claims that the “Leontief – Sraffa matrix equations for input/output must obey constant returns to scale”. However, in an unrelated work, Amartya Sen [2003] claims that Sraffa’s [1960] “analysis does not need any assumption of constant returns to scale.” In fact, Sraffa’s model cannot satisfy this property because it is impossible to define constant returns to scale in it. This claim is considerably stronger than Sen’s. The property of constant returns to scale is significant because it constitutes a line of demarcation between distinct, though interrelated, economic theories of value. (96 words)

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