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Factor-Market Distortions and Dynamic Optimal Intervention: Reply

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  • Lapan, Harvey E.

Abstract

Edward Ray, in his comment on my 1976 paper, analyzes a slightly different model than the one I presented, and thus reaches different conclusions. His principal conclusions are that: (i) given wage rigidities, a wage subsidy to producers is needed, and this subsidy is equivalent to the optimal static subsidy that ensures full employment in each sector; and (ii) given the forced equilization of wages across sectors, a subsidy to workers is needed to encourage labor transfers between sectors. Thus, Ray finds that full employment is always desirable, whereas I find that some unemployment is (usually) present along the optimum path.

Suggested Citation

  • Lapan, Harvey E., 1979. "Factor-Market Distortions and Dynamic Optimal Intervention: Reply," ISU General Staff Papers 197909010700001150, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:197909010700001150
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