Transaction Cost, Specialization and Division of Labor<br/> —A General Equilibrium Analysis of Entrepreneurship under Globalization

Abstract

This paper develops a Walrasian general equilibrium model based on transaction cost and specialization to investigate the evolution and role of entrepreneurship in a competitive market under globalization. The implication of our model is straightforward that if the entrepreneurship in a competitive market under globalization is efficient, it will ensure the network and effects of division of labor can be fully exploited when the gains from the division of labor outweigh the costs of exchange between individuals of different specialization patterns with the different fixed learning costs. Hence, the entrepreneurship service in a competitive market under globalization can promote aggregate productivity by enlarging the scope for trading off network effects of the division of labor on aggregate productivity against transaction costs. To business practitioners, this model suggests that the entrepreneurship service is a key element of business viability during which a major transition took place in human activity. Besides, the improvement of the level of globalization and the general transaction efficiency coefficient will increase the level of division of labor and the per capita real income level of participants.