Trade-offs in Compensating Transfers for a Multiple-skill Model of Occupational Choice

Toshihiro Ichida

Discussion papers from Research Institute of Economy, Trade and Industry (RIETI)

Abstract: Using a multiple-skill model of occupational choice, we study the trade-offs faced by a benevolent government that aims at Pareto improvement from trade liberalization via incentive-compatible compensating transfers. When the transfers are designed after some liberalization has been realized, the trade-off is between Pareto improvement and overcompensation. When agents anticipate future transfer schemes, the trade-off is between the size of aggregate production gains and the amount of overcompensation.

Pages: 46 pages
Date: 2015-07
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