Returns to Scale, Externalities and the Choice of Techniques

It is argued that the method of comparison of techniques adopted by Sraffa can be extended beyond the area of constant returns to scale or diminishing returns on land. The case of variable returns at the industry level related to external diseconomies is investigated. It is shown that, under the assumption of a gradual increase in demand at a given uniform rate of profit, the choice of techniques by competitive firms can be inefficient and this inefficiency affects income distribution in a different way than the inefficiency arising in the case of external economies.