The partition of production between households and markets

Abstract

Abstract The process of industrialization was accompanied by the switch from household production to firm production. The industrialization process was also a process of population growth, the appearance of general‐purpose technologies, and the expansion of international trade. This paper studies the partition of production between households and firms in an analytically tractable general equilibrium model with a continuum of goods. We show that population growth, development of general‐purpose technologies, and the opening of international trade increase the percentage of goods produced by firms. However, with the appearance of a technology biased toward home production, the percentage of goods produced by households can increase.

Keywords

• economic development
• household production
• increasing returns
• structural change
• technology choice