Increasing Returns and Strategic Behavior: The Worker-Firm Ratio

This article presents a model of an increasing returns economy in which each agent is allowed to choose his occupation; he can be a worker or an employer. It is shown that as the number of agents increases to infinity, the proportion of employers in the population approaches zero. A large economy can be a competitive economy, a natural oligopoly, or a natural monopoly, depending upon the asymptotic significance of scale economies. Replication does not eliminate the per capita welfare loss due to imperfect competition in the natural oligopoly case. The asymptotic behavior of income per head and its functional distribution are also discussed.