Journal of Political Economy Vol. 79 No. 3 1971
Distortions in Factor Markets and the General Equilibrium Model of Production
Abstract
A premium paid to a factor of production in one industry over the return earned by the same factor in the other industry in a two-sector model is a distortion that affects all factor prices and the general efficiency of production. It allows for the possibility that the industry employing the higher capital-labor ratio nonetheless pays labor a higher distributive share. In such a case, commodity outputs are inversely related to commodity prices. Furthermore, the paper explores how distortions can affect the shape of the transformation schedule and the optimal strategy to be followed by a factor of production intent on maximizing its returns.
- DOI
- 10.1086/259762
- Volume
- 79
- Issue
- 3
- Pages
- 437-459
- Language
- en
- Sources
- openalex crossref