Skip to main content
Factor-Market Distortions and Dynamic Optimal Intervention: Reply
The American Economic Review
  • Harvey E. Lapan, Iowa State University
Document Type
Response or Comment
Publication Version
Published Version
Publication Date
Edward 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.

This is a response of an article from The American Economic Review 69 (1979): 718. Posted with permission.

Copyright Owner
American Economic Association
File Format
Citation Information
Harvey E. Lapan. "Factor-Market Distortions and Dynamic Optimal Intervention: Reply" The American Economic Review Vol. 69 Iss. 4 (1979) p. 718 - 720
Available at: