Scale, Scope, and the Reuse of
Knowledge
Richard N. Langlois
Department of Economics
The University of Connecticut
U63 Storrs, CT 06269-1063 USA
(860) 486-3472 (phone)
(860) 486-4463 (fax)
Richard.Langlois@UConn.edu
Paper presented at the
conference in honor of Brian J. Loasby, August 26-28, 1997, Stirling, Scotland.
Published in Sheila C. Dow and
Peter E. Earl, eds.,
Economic Organisation and Economic Knowledge: Essays in Honour of Brian
Loasby.
Cheltenham: Edward Elgar, 1999, pp. 239-254.
ABSTRACT
The
traditional notion of economies of scale and the more recently fashionable idea
of economies of scope both appear in neoclassical economic theory as purely
technical flow relationships. For example, economies of scale in this theory
reflect lower unit costs at higher rates of output (Q/t); and, as the
economist's favorite example of the phenomenon suggests, such reductions in
cost arise from purely technical relations, as when, thanks to the laws of
geometry, using a larger pipe doubles throughput without doubling the materials
needed to make the pipe. At the same time, however, economists have also toyed
with another notion of "scale" in which lower costs at higher outputs
arise because of the growth of knowledge such scale enables. As Loasby (1989, p
62) points out, this is what distinguished Marshall's conception of increasing
returns from the neoclassical account of scale economies. Via the concept of
the learning curve, the knowledge-increasing effects of scale have entered the
mainstream literature (e. g., Spence 1981). But, apart from the work of Alchian
(1959), there has been little attempt to reconcile the standard account with a
learning account. Drawing on recent work on the reuse of knowledge - as, for
example, the case of the reuse of software code (Cusumano 1991) - this paper
will (1) sort through competing accounts of economies of scale and scope; (2)
attempt to make sense of these concepts in terms of economies in the reuse of
knowledge; and (3) make the bold claim that, at base, economies of scale and
scope - even those arising from purely technical causes - arguably boil down to
the reuse of knowledge.
References.
Alchian,
Armen. 1959. "Costs and Output," in Moses Abramovitz, et al., eds., The
Allocation of Economic Resources. Stanford: Stanford University Press.
Cusumano,
Michael A. 1991. Japan's Software Factories: A Challenge to U.S. Management.
New York: Oxford University Press.
Loasby,
Brian J. 1989. The Mind and Method of the Economist. Aldershot: Edward
Elgar.
Spence,
A. Michael. 1981. "The Learning Curve and Competition," Bell
Journal of Economics 12(1): 49-70 (Spring).
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