Ira Gang
Rutgers University
Department of Economics
E-mail: gang@economics.rutgers.edu
Item Number: [J2]
Title: A Note on Optimal Policies in Dual Economies
Abstract: Basu assumed fixed relative prices. In this note We introduce
discusses into the discussion of optimal subsidy policies within a Harris-Todaro
economy an aggregate demand curve and, therefore, allow prices to vary. Under
homotheticity of preferences we show that (i) if the propensities of labor
and nonlabor are the same to consume, then price flexibility does not change
the Basu analysis (i.e., there is a range of subsidies that gets us to first
best and the equilibrium is unique); and (ii) if the propensities differ,2
there is still a range of subsidies that gives us Pareto efficiency, but
each subsidy in this range gets us to a different equilibrium.
Reference: Ira N. Gang and Shubhashis Gangopadhyay, A Note on
Optimal Policies in Dual Economies (with Shubhashis Gangopadhyay), Quarterly
Journal of Economics, 100 (1985) 1067-1071.
Co-Author Information:
Shubhashis Gangopadhyay
India Development Foundation
E-Mail: shubg@vsnl.com
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