Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects
AbstractWe model adjustment costs in a general equilibrium setting using a â€œtransport 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 governmentâ€™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 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 qt7rk3z9w1.
Date of creation: 26 Aug 2002
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adjustment costs; dynamic policies; time-inconsistency; Markov perfection; disadvantageous policy;
Other versions of this item:
- Larry Karp & Thierry Paul, 2005. "Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects," Review of International Economics, Wiley Blackwell, vol. 13(2), pages 330-355, 05.
- Karp, Larry S. & Theirry, Paul, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," CUDARE Working Paper Series 893R, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
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