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

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  • Larry Karp
  • Thierry Paul

Abstract

We model adjustment costs in a general-equilibrium setting using a "transport sector." This sector provides services needed to reallocate a factor of production across two 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. Copyright Blackwell Publishing Ltd 2005..

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  • 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, May.
  • Handle: RePEc:bla:reviec:v:13:y:2005:i:2:p:330-355
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    References listed on IDEAS

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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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