Much of economic analysis is based on the absence of increasing returns. However, due to indivisibilities, knowledge needed for production, learning by doing, external economies, and the economies of specialization, increasing returns are omnipresent. Recognizing increasing returns disrupts much of the established wisdom in economic analysis, such as the efficiency irrelevancy of pecuniary external effects, the neutrality of money, and the Pareto optimality of general equilibrium. This book discusses these problems and ways they can be handled. It underlines the importance of entrepreneurship and organizational efficiency and provides a thorough analysis that explains many phenomena in the real world with important and original policy implications different from the traditional analysis.
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