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

Larry Karp and Thierry Paul

Review of International Economics, 2005, vol. 13, issue 2, 330-355

Abstract: We model adjustment costs in a general‐equilibrium setting using a “transport sector.” This sector provides services needed to reallocate 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.

Date: 2005
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https://doi.org/10.1111/j.1467-9396.2005.00507.x

Related works:
Working Paper: Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects (2002)
Working Paper: Intersectoral Adjustment and Policy Intervention: the Importance of General Equilibrium Effects (2002)
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