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Labor Adjustment and Gradual Reform:Is Commitment Important?

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  • Karp, Larry
  • Paul, Thierry

Abstract

We analyze a model in which a government uses a second best policy to affect the reallocation of labor, following a change in relative prices. We consider two extreme cases, in which the government has either unlimited or negligible ability to commit to future actions. We explain why the ability to make commitments may be unimportant, and we illustrate this conjecture with numerical examples. For either assumption about commitment ability, the equilibrium policy involves gradual liberalization. The dying sector is protected during the transition to a free market, in order to decrease the amount of unemployment. Our results are sensitive to the assumptions about migration.

Suggested Citation

  • Karp, Larry & Paul, Thierry, 1994. "Labor Adjustment and Gradual Reform:Is Commitment Important?," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt7gc7t3nm, Department of Agricultural & Resource Economics, UC Berkeley.
    • Handle: RePEc:cdl:agrebk:qt7gc7t3nm
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    Cited by:

    1. Karp, Larry, 1995. "The Direction and Timing of Agricultural Trade Refonn in Central and East Europe," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt9z61f67x, Department of Agricultural & Resource Economics, UC Berkeley.

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