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

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  • Karp, Larry S.
  • Paul, Thierry

Abstract

We model adjustment costs in a general equilibrium setting using a "transport sector". This sector provides services needed to re-allocate 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.

Suggested Citation

  • Karp, Larry S. & Paul, Thierry, 2002. "Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects," CUDARE Working Papers 25114, University of California, Berkeley, Department of Agricultural and Resource Economics.
    • Handle: RePEc:ags:ucbecw:25114
    DOI: 10.22004/ag.econ.25114
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    Cited by:

    1. Didier Laussel & Philippe Michel & Thierry Paul, 2004. "Intersectoral adjustment and unemployment in a two-country Ricardian model. Une approche par la méthode événementielle," Recherches économiques de Louvain, De Boeck Université, vol. 70(2), pages 169-192.
    2. 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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