Robinson Crusoe, Friday, and the Competitive Price Mechanism: Some Implications of the Heterogeneity of Successive Labor Units

Abstract

The distinction between goods and services typically plays a very modest role in general equilibrium theory. If made at all, it only serves to illustrate the lack of storability of some commodities or the rationale of stock-flow analysis. We shall argue in this paper that the distinction deserves more attention than it usually receives. One important class of services consists of those rendered by economic subjects. Two essential characteristics of these commodities are (1) that an individual can offer his services only in a specific sequence, and (2) that successive units in this sequence are not necessarily homogeneous. More specifically, successive hours of work have to be offered and used in a specific sequence, and these successive units of human effort are not always equally efficient. Whether the efficiency of labor hours is measured in terms of some final product produced or in terms of some productive service provided, depends on the kind of human effort under consideration. In this paper we shall use the term efficiency units to cover all situations. Sequential heterogeneity of labor units then implies that successive hours of work during the same day yield variable amounts of efficiency units, or, equivalently, that successive efficiency units are increasingly or decreasingly time consuming. Sequential heterogeneity clearly differs from heterogeneity in general, the rather common phenomenon that different units of the same commodity