Shadow pricing of labour and capital in an economy with unemployed labour |
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Authors: | M. Marchand J. Mintz P. Pestieau |
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Affiliation: | CORE, 1348 Louvain-la-Neuve, Belgium |
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Abstract: | This paper derives the shadow prices of labour and capital to be used in the public sector in a situation of unemployment. The setting considered is that of a three-good, two-period general equilibrium model. Then shadow prices are compared to their corresponding market prices and shown to closely depend on own and cross-elasticities of supply and demand for labour and investment. In the first part, a rigid wage rate is the sole source of distortion; then, a tax on capital income is introduced so that our formula for the social rate of discount can be contrasted with that of Harberger, Sandmo and Drèze. |
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