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The Social Cost of Labor, and Project Evaluation: A General Approach

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  • Joseph E. Stiglitz
  • Raaj Kumar Sah

Abstract

This paper develops a general methodology for analyzing shadow wage (and other shadow prices). Our approach is to identify those reduced form relationships describing the economy which are central to the determination of the shadow wage, and use these to obtain simple formulae for the shadow wage. Among the aspects of the economy on which we focus are: (i) the difference between the domestic and international prices, (ii) the equilibrating mechanisms in the economy, (iii) the mechanisms which determine earnings of industrial and agricultural workers, (iv) the nature of migration, and (vi) the intertemporal trade-offs and the attitudes towards inequality. These aspects are modelled in a general manner, which can be specialized to a number of alternative hypotheses concerning technology, behavioral postulates, and institutional settings. Most earlier results on the shadow wages are derived as special cases of our formulae. In addition, we identify a number of new qualitative results concerning the relationship between the shadow wage and the market wage.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1229.

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Date of creation: Nov 1983
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Publication status: published as Sah, Raaj Kumar and Joseph E. Stiglitz. "The Social Cost of Labor and Project Evaluation: A General Approach." Journal of Public Economics, Vol. 28,(1985), pp. 135-163.
Handle: RePEc:nbr:nberwo:1229

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  1. Dixit, Avinash, 1971. "Short-run Equilibrium and Shadow Prices in the Dual Economy," Oxford Economic Papers, Oxford University Press, vol. 23(3), pages 384-400, November.
  2. Roberts, Kevin W S, 1982. "Desirable Fiscal Policies under Keynesian Unemployment," Oxford Economic Papers, Oxford University Press, vol. 34(1), pages 1-22, March.
  3. Sen, Amartya K, 1972. "Control Areas and Accounting Prices: An Approach to Economic Evaluation," Economic Journal, Royal Economic Society, vol. 82(325), pages 486-501, Supplemen.
  4. Blitzer, Charles & Dasgupta, Partha & Stiglitz, Joseph, 1981. "Project Appraisal and Foreign Exchange Constraints," Economic Journal, Royal Economic Society, vol. 91(361), pages 58-74, March.
  5. Heady, Christopher John, 1981. "Shadow Wages and Induced Migration," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 108-21, March.
  6. Marchand, Maurice & Mintz, Jack & Pestieau, Pierre, 1985. "Public production and shadow pricing in a model of disequilibrium in labour and capital markets," Journal of Economic Theory, Elsevier, vol. 36(2), pages 237-256, August.
  7. Newbery, David, 1974. "The Robustness of Equilibrium Analysis in the Dual Economy," Oxford Economic Papers, Oxford University Press, vol. 26(1), pages 32-41, March.
  8. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
  9. Newbery, David M G, 1972. "Public Policy in the Dual Economy," Economic Journal, Royal Economic Society, vol. 82(326), pages 567-90, June.
  10. Benassy Jean-pascal, 1974. "Neokeynesian disequilibrium theory in a monetary economy," CEPREMAP Working Papers (Couverture Orange) 7402, CEPREMAP.
  11. Dixit, Avinash & Stern, Nicholas, 1974. "Determinants of Shadow Prices in Open Dual Economies," Oxford Economic Papers, Oxford University Press, vol. 26(1), pages 42-53, March.
  12. Stern, Nicholas H, 1972. "Optimum Development in a Dual Economy," Review of Economic Studies, Wiley Blackwell, vol. 39(2), pages 171-84, April.
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Cited by:
  1. Alkire, Sabina & Deneulin, Séverine, 1998. "Individual Motivation, its Nature, Determinants and Consequences for Within Group Behavior," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999033, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  2. Lawrence F. Katz & Lawrence H. Summers, 1988. "Can Inter-Industry Wage Differentials Justify Strategic Trade Policy?," NBER Working Papers 2739, National Bureau of Economic Research, Inc.
  3. Fields, Gary S., 2005. "A guide to multisector labor market models," Social Protection Discussion Papers 32547, The World Bank.
  4. Fields, Gary S., 1997. "Wage floors and unemployment: A two-sector analysis," Labour Economics, Elsevier, vol. 4(1), pages 85-91, March.
  5. Fields, Gary S., 2005. "A welfare economic analysis of labor market policies in the Harris-Todaro model," Journal of Development Economics, Elsevier, vol. 76(1), pages 127-146, February.

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