Division of Work and Fragmented Information: An Explanation for the Diminishing Marginal Product of Labor

In this paper, an explanation for the diminishing marginal product of labor is demonstrated in a model that incorporates the concept of entropy from information theory. First, I introduce the concept of “division of work” and argue that the division of work (i.e., the allocation of tasks in the production process) and not the division of labor (i.e., worker specialization) is the source of the diminishing marginal product of labor. Division of work results in a fragmentation of the information that workers can access, and inefficiencies other than the commonly assumed factors of redundancy and congestion in labor inputs are generated by this fragmentation of information. The introduced inefficiency is modeled using the concept of entropy from information theory and the experience curve effect theory. The mechanism of the diminishing marginal product of labor is well explained by the model, and the model is similarly used to explore the diminishing marginal product of capital.