Labor Adjustment and Gradual Reform:Is Commitment Important?

Larry Karp and Thierry Paul

Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series from Department of Agricultural & Resource Economics, UC Berkeley

Abstract: We analyze a model in which a government uses a second best policy to affect the reallocation of labor, following a change in relative prices. We consider two extreme cases, in which the government has either unlimited or negligible ability to commit to future actions. We explain why the ability to make commitments may be unimportant, and we illustrate this conjecture with numerical examples. For either assumption about commitment ability, the equilibrium policy involves gradual liberalization. The dying sector is protected during the transition to a free market, in order to decrease the amount of unemployment. Our results are sensitive to the assumptions about migration.

Keywords: adjustment costs; dynamic tariffs; time inconsistency; Markov perfection (search for similar items in EconPapers)
Date: 1994-10-01
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Labour Adjustment and Gradual Reform: Is Commitment Important? (1995)
Working Paper: LABOR ADJUSTMENT AND GRADUAL REFORM: IS COMMITMENT IMPORTANT? (1994)
Working Paper: Labor Adjustment and Gradual Reform: Is Commitment Important (1994)
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