Chapter 41: The Lerner Diagram
Alan V. Deardorff The Lerner Diagram was first drawn by Abba Lerner in an unpublished seminar paper in 1933. He used unit-value isoquants together with unit isocost lines to show the relationship between prices of goods and factors in what we now call the Heckscher-Ohlin model. That paper was reproduced, ‘as it was originally written’ according to the journal editor, as Lerner (1952). Since then, many others have used the diagram, attributing it to Lerner, for purposes well beyond Lerner’s explication of good and factor prices. Notably, Findlay and Grubert (1959) used the diagram for analyzing the effects of technological progress on outputs and, in consequence, the terms of trade. Some (including me, until I learned better) have called it the LernerPearce Diagram, giving credit also to Pearce (1952a,b). In fact, although Pearce (1952a) was debating Lerner regarding the likelihood of factor price equalization, he used unit isoquants, not unit-value isoquants. Since these do not align in equilibrium with a single unit isocost line, they cannot be used in the same way, and they do not achieve the essential simplicity of Lerner’s construction. Pearce (1952b) did use unit-value isoquants, but in context it is clear that he was simply copying Lerner.1 1. THE DIAGRAM The essential Lerner Diagram is Figure 41.1. It is drawn for given constant-returns-to-scale technologies for producing two goods, X and Y, from two factors, capital K and labor L, and for given goods prices, pX and pY. Technologies and prices together imply the two curved...
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.