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The Optimal Rate of Decline of an Inefficient Industry

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  • Rees, Ray
  • Forster, B. A.

Abstract

This paper considers the problem of the optimal time path of contraction of an industry which has been hit by foreign competition, and shows that in general, along the optimal path, a production subsidy is warranted. The optimal subsidy trades off the benefit of unemployment in speeding up the approach to the new long-run equilibrium against the cost of lost output in the ‘inefficient’ industry. The dynamic shadow price of labour in this industry is also derived and shown to be always positive, though below the industry wage rate

Suggested Citation

  • Rees, Ray & Forster, B. A., 1983. "The Optimal Rate of Decline of an Inefficient Industry," Munich Reprints in Economics 3412, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:3412
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    File URL: https://epub.ub.uni-muenchen.de/3412/1/4.pdf
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    Cited by:

    1. Frank Barry & Joe Durkan, 1996. "Team Aer Lingus and Irish Steel: An Application of the Declining High-Wage Industries Literature," Open Access publications 10197/5743, School of Economics, University College Dublin.
    2. Oliver Fritz, 2016. "Tourismusförderungen in Wien," WIFO Studies, WIFO, number 59381, April.

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