Inframarginal economics

Inframarginal economics is to apply inframarginal analysis to studies of network effects of division of labor and various economic problems associated with different features of the network pattern of division of labor. To understand what is inframarginal analysis and the framework that distinguishes inframarginal economics from marginal economics and neoclassical economics that sometime also applies inframarginal analysis, we have to look at the difference between the core of classical mainstream economics and neoclassical economics.

The core of classical mainstream economics represented by William Petty and Adam Smith differed from neoclassical economics in two aspects. It focused on network effects of division of labor and it emphasized the role of the market (the invisible hand) in exploiting the network effects to reduce scarcity. As shown in Yang and Ng (Specialization and Organization, 1993) and Yang (Economics: New Classical Versus Neoclassical Frameworks, 2001), inframarginal analysis of individuals’ networking decisions is essential for formalizing the classical development economics. Here inframarginal analysis is the total cost-benefit analysis across corner solutions in addition to the marginal analysis of each corner solution. If the optimum value of a decision variable takes on its upper or lower bound, the optimal decision is a corner solution. Formally, it relates to nonlinear programming, mixed integer programming, dynamic programming, the control theory, and other nonclassical mathematical programming.

By Xiaokai Yang, September, 2001

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