Problems of scale : an O.R./systems approach
The history of analyses of scale and the conventional reductionist methodology are briefly recounted in the first chapter of the thesis. A detailed examination is then made of the theory of economies of scale and its development since the days of Adam Smith. A comprehensive survey shows that the description provided by conventional economic theory is quite unrealistic, and has been dictated by the demands of Neoclassical ideas of equilibrium. It is shown that the available empirical evidence does not easily allow conclusions to be drawn about the optimal scale of plants or enterprises. A simple simulation model then demonstrates that static economies of scale alone are insufficient to determine "optimal" scale - dynamic diseconomies depend upon environmental context and uncertainties of forecasting future demand. The question of technological change is closely bound up with issues of scale. The principle of bounded rationality is applied to deduce some conditions about the nature of technical change using Heiner's "Reliability Condition". The existence of "technological heuristics" (such as a bias in favour of scale-augmenting innovations) is predicted. The argument is illustrated with the use of a computer simulation of successive process innovations in a stylised chenical plant. Conflicting ideas about "optimal" scale in electricity generation, papermaking, brewing and cement manufacture are examined. These views are found to be explicable by borrowing the theory of fourfold cultural bias from the field of social anthropolgy. An Evolutionary Model of Increasing Returns (EMIR) is developed as a computer simulation. This model demonstrates that the restrictions imposed by conventional economic theory can be overcome in a dynamic economic model; economies of scale and technical change are married with plural rationalities to provide a range of findings on industry structure. Market share is found to be a more important determinant of industrial success than economies of scale. EMIR is used to demonstrate the phenomenon of technological "Lock-In"; important policy choices may be determined by small random events as critical points. Market selection mechanisms cannot be relied upon to optimise, whether in scale decisions or other important policy choices. The thesis concludes with a discussion of the use of plural models to go with plural rationalities in the analysis of policy issues.