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We analyze a model in which a government uses a second best policy to affect thereallocation 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 aresensitive to the assumptions about migration.

Keywords: adjustment costs ; dynamic tariffs ; time inconsistency ; Markov perfection

Subject(s): Labor and Human Capital

Issue Date: 1994

Publication Type: Working or Discussion Paper

PURL Identifier: http://purl.umn.edu/51222

Total Pages: 60

Series Statement: Working Paper

94-5

Record appears in: International Agricultural Trade Research Consortium > Working Papers





Autor: Karp, Larry S. ; Paul, Thierry

Fuente: http://ageconsearch.umn.edu/record/51222?ln=en







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