Factor-Market Distortions and Dynamic Optimal Intervention: ReplyThe American Economic Review
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AbstractEdward Ray, in his comment on my 1976 paper, analyzes a slightly different model than the one I presented, and thus reaches different conclusions. His principal conclusions are that: (i) given wage rigidities, a wage subsidy to producers is needed, and this subsidy is equivalent to the optimal static subsidy that ensures full employment in each sector; and (ii) given the forced equilization of wages across sectors, a subsidy to workers is needed to encourage labor transfers between sectors. Thus, Ray finds that full employment is always desirable, whereas I find that some unemployment is (usually) present along the optimum path.
Copyright OwnerAmerican Economic Association
Citation InformationHarvey E. Lapan. "Factor-Market Distortions and Dynamic Optimal Intervention: Reply" The American Economic Review Vol. 69 Iss. 4 (1979) p. 718 - 720
Available at: http://works.bepress.com/harvey-lapan/48/