Labor Adjustment and Gradual Reform:Is Commitment Important?
AbstractWe analyze a model in which a government uses a second best policy to affect the reallocation of labor, following a change in relative prices. We consider two extreme cases, in which the government has either unlimited or negligible ability to commit to future actions. We explain why the ability to make commitments may be unimportant, and we illustrate this conjecture with numerical examples. For either assumption about commitment ability, the equilibrium policy involves gradual liberalization. The dying sector is protected during the transition to a free market, in order to decrease the amount of unemployment. Our results are sensitive to the assumptions about migration.
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Bibliographic InfoPaper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt7gc7t3nm.
Date of creation: 01 Oct 1994
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adjustment costs; dynamic tariffs; time inconsistency; Markov perfection;
Other versions of this item:
- Karp, Larry & Paul, Thierry, 1995. "Labour Adjustment and Gradual Reform: Is Commitment Important?," CEPR Discussion Papers 1094, C.E.P.R. Discussion Papers.
- Karp, Larry S. & Paul, Thierry, 1994. "Labor Adjustment And Gradual Reform: Is Commitment Important?," Working Papers 51222, International Agricultural Trade Research Consortium.
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
- J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
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