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Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects

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  • Karp, Larry
  • Paul, Thierry

Abstract

We model adjustment costs in a general equilibrium setting using a “transport sectorâ€. This sector provides services needed to re-allocate a factor of production across wo other sectors. A market imperfection in the transport sector causes adjustment to occur too slowly in the absence of government intervention. The government has a restricted menu of second best policies to remedy this imperfection. Given this restricted menu, the optimal policy choice depends on the government’s ability to make commitments. The key to these results is our replacement of the black box of adjustment costs with an explicit model of these costs.

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Bibliographic Info

Paper provided by Department of Agricultural & Resource Economics, UC Berkeley in its series Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series with number qt7rk3z9w1.

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Date of creation: 26 Aug 2002
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Handle: RePEc:cdl:agrebk:qt7rk3z9w1

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Related research

Keywords: adjustment costs; dynamic policies; time-inconsistency; Markov perfection; disadvantageous policy;

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References

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  1. Anderson, Patricia M, 1993. "Linear Adjustment Costs and Seasonal Labor Demand: Evidence from Retail Trade Firms," The Quarterly Journal of Economics, MIT Press, vol. 108(4), pages 1015-42, November.
  2. Stokey, Nancy L., 1991. "Credible public policy," Journal of Economic Dynamics and Control, Elsevier, vol. 15(4), pages 627-656, October.
  3. Karp, Larry & Paul, Thierry, 1993. "Phasing in and Phasing Out Protectionism with Costly Adjustment of Labour," CEPR Discussion Papers 856, C.E.P.R. Discussion Papers.
  4. Tsutsui, Shunichi & Mino, Kazuo, 1990. "Nonlinear strategies in dynamic duopolistic competition with sticky prices," Journal of Economic Theory, Elsevier, vol. 52(1), pages 136-161, October.
  5. Karp, Larry, 1996. "Monopoly Power Can Be Disadvantageous in the Extraction of a Durable Nonrenewable Resource," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 825-49, November.
  6. Hayashi, Fumio & Inoue, Tohru, 1991. "The Relation between Firm Growth and Q with Multiple Capital Goods: Theory and Evidence from Panel Data on Japanese Firms," Econometrica, Econometric Society, vol. 59(3), pages 731-53, May.
  7. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-74, May.
  8. Krugman, Paul, 1991. "History versus Expectations," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 651-67, May.
  9. Mussa, Michael, 1978. "Dynamic Adjustment in the Heckscher-Ohlin-Samuelson Model," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 775-91, October.
  10. Pindyck, Robert S & Rotemberg, Julio J, 1983. "Dynamic Factor Demands and the Effects of Energy Price Shocks," American Economic Review, American Economic Association, vol. 73(5), pages 1066-79, December.
  11. Xie, Danyang, 1997. "On Time Inconsistency: A Technical Issue in Stackelberg Differential Games," Journal of Economic Theory, Elsevier, vol. 76(2), pages 412-430, October.
  12. Rogoff, Kenneth, 1985. "Can international monetary policy cooperation be counterproductive?," Journal of International Economics, Elsevier, vol. 18(3-4), pages 199-217, May.
  13. Kehoe, Patrick J, 1989. "Policy Cooperation among Benevolent Governments May Be Undesirable," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 289-96, April.
  14. Brian L. Buhr & Hanho Kim, 1997. "Dynamic Adjustment in Vertically Linked Markets: The Case of the U.S. Beef Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(1), pages 126-138.
  15. Terra, Maria Cristina T., 1999. "Tariff design with varying degrees of commitment," Journal of Development Economics, Elsevier, vol. 58(1), pages 123-147, February.
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Cited by:
  1. Didier LAUSSEL & Philippe MICHEL & Thierry Paul, 2004. "Intersectoral adjustment and unemployment in a two-country Ricardian model," Discussion Papers (REL - Recherches Economiques de Louvain) 2004023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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