Specialization, Information, and Growth: A Sequential Equilibrium Analysis.

Pricing costs and information problems are introduced into a framework with consumer-producers, economies of specialization, and transaction costs, to predict the endogenous and concurrent evolution of the division of labor and of information concerning economic organization acquired by society. Concurrent evolution generates endogenous growth based on the tradeoff between gains from information about the efficient pattern of the division of labor--which can be acquired via experiments with various patterns--and experimentation costs, which relate to the costs of discovering prices. The concept of Walras sequential equilibrium is developed to analyze the social learning process which is characterized by uncertainties in the direction of the evolution and by a certain trend of the evolutionary process. Copyright 1997 by Blackwell Publishing Ltd