Structured Production Systems: Viability
Robert P. Gilles, Marialaura Pesce
TL;DR
The paper develops a framework for equilibrium in structured production systems that separate consumption goods in competitive markets from intermediate goods negotiated via bilateral relations. Viability, defined as all producers earning positive incomes, is linked to the Hawkins-Simon condition and to the architecture of the production system, with acyclic structures guaranteeing viability and complete viability requiring input restrictions that prevent consumption goods from serving as inputs to other consumption goods. It establishes a three-stage program toward a full general equilibrium: viability, market clearing for consumption goods, and endogenized intermediate prices via bargaining, thereby connecting Leontief-Sraffa style structure with modern network economics. The results clarify how production network topology and input rules shape sustainability, price formation, and potential policy design for robust supply chains.
Abstract
This paper introduces a novel framework for analysing equilibrium in structured production systems incorporating a static social division of labour by distinguishing between consumption goods traded in competitive markets and intermediate goods exchanged through bilateral relationships. We develop the concept of viability -- the requirement that all producers earn positive incomes -- as a foundational equilibrium prerequisite. Our main theoretical contribution establishes that acyclic production systems -- those without circular conversion processes among goods -- are always viable, a condition that implies coherence. We characterise completely viable systems through input restrictions demonstrating that prohibiting consumption goods as inputs for other consumption goods is necessary for ensuring viable prices exist for all consumption good price vectors. The analysis reveals fundamental relationships between production system architectural design and economic sustainability. The introduced framework bridges Leontief-Sraffa production theory with modern network economics while capturing institutional realities of contemporary production systems. This also results in a contribution of the literature on the existence of a positive output price system and the Hawkins-Simon condition.