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

Larry S. Karp and Thierry Paul
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Thierry Paul: Univerisity of Grenoble

No 893R, Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

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 wo 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.

Keywords: adjustment costs; dynamic policies; time-inconsistency; Markov perfection; disadvantageous policy (search for similar items in EconPapers)
Date: 2002-08-26
Note: oai:cdlib1:are_ucb-1025
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Journal Article: Intersectoral Adjustment and Policy Intervention: the Importance of General-Equilibrium Effects (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:cdl:agrebk:893r

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