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Consumption efficiency hypothesis and the HOS model: Some counterintuitive results

  • Chaudhuri, Sarbajit
  • Banerjee, Dibyendu

We show how accommodation of the consumption efficiency hypothesis can explain the existence of involuntary unemployment in the two-by-two Heckscher-Ohlin-Samuelson (HOS) model. Although the workers consume both the commodities their nutritional efficiency depends on the consumption of one commodity only. An increase in the relative price of the capital-intensive (labour-intensive) goods raises (lowers) the effective employment in the economy. The effects of commodity price changes on the output levels of the two sectors might be perverse. These results are different from the standard HOS results.

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Article provided by Elsevier in its journal Research in Economics.

Volume (Year): 62 (2008)
Issue (Month): 2 (June)
Pages: 64-71

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Handle: RePEc:eee:reecon:v:62:y:2008:i:2:p:64-71
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  1. Harvey Leibenstein, 1958. "Underemployment in Backward Economies: Some Additional Notes," Journal of Political Economy, University of Chicago Press, vol. 66, pages 256.
  2. Bose, Gautam, 1996. "Agrarian efficiency wages in a dual economy," Journal of Development Economics, Elsevier, vol. 49(2), pages 371-386, May.
  3. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-34, December.
  4. Ronald W. Jones, 1965. "The Structure of Simple General Equilibrium Models," Journal of Political Economy, University of Chicago Press, vol. 73, pages 557.
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