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

Author Name ICHIDA Toshihiro  (Waseda University)
Creation Date/NO. July 2015 15-E-083
Research Project Trade and Industrial Policies in a Complex World Economy
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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.