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Cost-Reducing Technologies and Labor Supply in a Krugman-type Model where Consumption is Time-Constrained: Some New Results

  • Manoj Pant and Sugandha Huria EMAIL logo
Published/Copyright: January 31, 2023

Abstract

This study demonstrates why traditional “cost-saving” technical progress fails in an economy where consumption is time-constrained. In such a case, introducing “time-saving” technical progress establishes a new consumption-production equilibrium characterized by higher per-capita consumption and real income, lower prices, and, a higher scale of production for surviving producers. Nonetheless, since there is a limit to how much time can be saved by technological advances, the model also suggests an alternative solution in the form of a rising labor force (say via immigration) to close the production-consumption gap. This solution generates an unambiguous increase in welfare, vis-à-vis cost-reducing or time-saving technical progress.

JEL Classification: O14; D50; D11; D21

Corresponding author: Sugandha Huria, Indian Institute of Foreign Trade – Delhi Campus, New Delhi, Delhi, India, E-mail:

We have greatly benefitted from comments and suggestions from an anonymous referee in revising our paper.


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Received: 2022-06-05
Revised: 2022-09-18
Accepted: 2022-11-17
Published Online: 2023-01-31

© 2023 Walter de Gruyter GmbH, Berlin/Boston

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