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ced out this fact. In linear models the problems may look very dif- 
‘erent from what they look in classical production theory. So there 
is absolutely no difference of opinion on that. But in my system 
the optimal prices have to be applied to specific enterprises and, ot 
course, in any given enterprise you certainly have very definitely an 
economy of scale, hence a non linear effect. 
You have to a large extent a continuous and non linear process. 
You do not have a constant return to scale ad infinitum. 
There are quite a number of pages of the paper I circulated, 
where I speak about non linearity, but unfortunately there was no 
‘ime to go into it in my oral presentation 
Let me now say a few words about an aspect of non linearity. 
Suppose you consider a plant that uses either one of two factors of 
production. You want to influence the director of the plant by 
formulating incentives in such a way that: 1) The plant produces a 
certain amount of product; 2) It uses one of the two alternative 
‘actors of production rather than the other. Then you may consider 
1sing two non-linear incentives. You may define a premium as a non- 
inear function of the amount produced, and with a sharply-defined 
maximum at the point corresponding to the quantity which you want 
‘o see produced. At the same time you may use an other premium 
regarding the choice of factors of production. Now this is, of course, 
a very simple example, but something similar can be used in other 
and more complex cases. You will readily recognize, however, that 
to work with a non-linear premium is a rather complex affair. You 
might perhaps do it in certain cases of very great importance but if 
is absolutely impossible to do it in all the micro-economic details 
which you have to face when you want to steer an actual economy 
[hat is why I put so much emphasis on this specific accounting me- 
dium which is derived from the system of optimal prices. Such a 
system of incentive is, of course, linear but it may to a large extent 
be protected against flip-flap effects for the reasons I mentioned. 
Prof. ISARD at this conference always reminded us that we 
had to think in terms of regional problems, and I am glad that he 
has always insisted on that. For my own sake I have not disregarded 
F171 Frisch - pag. 29