Uncertainty, Knowledge, Transaction Costs and the Division of Labor

This paper provides an analysis of what may be seen as a generalized Smithian Theorem that the division of labor is limited by uncertainties, knowledge, and transaction/coordination costs (as well as the extent of the market). The interplay between knowledge and uncertainty on the one hand and progressive specialization on the other, and the implication of inter-occupational difference in human capital investments for the division of labor are further analyzed.