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Chapter 13: Flow-fund Model, Decomposability of the Production Process and the Structure of an Industrial District
13. Flow-fund model, decomposability of the production process and the structure of an industrial district Piero Tani 1. introduction Among the main features of industrial districts (IDs) there are (a) the small size of firms, (b) a subdivision of the production process in a number of partial processes, (c) with the latter being implemented by different (small) firms, which (d) are localized in a specific place, (e) with unique social and cultural characteristics.1 In mainstream industrial economics, the small size of firms is argued to produce diseconomies of scale, thus making it difficult for firms to compete and survive. However, the literature on IDs has shown that the other features mentioned above provide a way to overcome such a constraint. This chapter presents an analytical framework which is apt to represent how this can be. This framework is based on Georgescu-Roegen’s flow-fund model, which stresses the time dimension of production. This model has proved to be, at least in the opinion of some authors, more effective than the traditional production and cost theory based on production function. Sections 2–5 introduce the flow-fund model and some connected concepts (flow, fund, stock, elementary process), with special attention on the properties of decomposability and divisibility of a process. Finally, the chapter demonstrates how the model can explain some of the features of IDs. 2. Georgescu-Roegen’s flow-fund model In Georgescu-Roegen’s flow-fund model,2 the elements defining a production process are classified into three categories: funds, flows and stocks. GeorgescuRoegen defines ‘funds’ as the...
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