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Factor‐Market Distortions, Dynamic Stability, and Paradoxical Comparative Statics

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  • Murray C. Kemp
  • Masatoshi Yamada

Abstract

In the late 1960s and early 1970s there was a strong revival of interest in the role of factor‐market distortions in those branches of our subject which rely on the Lerner–Samuelson two‐by‐two model of production. Among the legacies from that period were several comparative statical propositions which seemed counterintuitive or paradoxical. However, the revival lost momentum when confronted with Neary’s observation that the major paradoxes are associated with unstable equilibria and therefore rarely observed. On the other hand, there are now seen to be several errors in Neary’s analysis. For example, in the important case of a closed economy (and, by interpretation, in the case of a large open economy) he overlooked the fact that paradoxes can be associated with stable equilibria.

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  • Murray C. Kemp & Masatoshi Yamada, 2001. "Factor‐Market Distortions, Dynamic Stability, and Paradoxical Comparative Statics," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 383-400, August.
    • Handle: RePEc:bla:reviec:v:9:y:2001:i:3:p:383-400
    DOI: 10.1111/1467-9396.00287
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    Cited by:

    1. Devadoss, Stephen, 2007. "Market power in input purchase and trade," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 478-487.

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