Welfare Analysis in an Extended Harris-Todaro Model: An Application of the Atkinson Theorem
12 Pages Posted: 2 Jul 2016
Date Written: November 26, 2015
I analyze the welfare effects of a policy of modern sector enlargement (MSENL), and a policy of increasing the efficiency of on-the-job search from the urban informal sector (IEOS) in a generalized Harris-Todaro model. I show that MSENL causes a Lorenz worsening of the income distribution and IEOS causes a Lorenz improvement. In a rare direct application of the Atkinson theorem, I conclude that MSENL decreases social welfare and IEOS increases social welfare for all anonymous, increasing and Schur-concave social welfare functions.
Keywords: Lorenz Curves, Segmented Labor Markets, Inequality, Welfare
JEL Classification: D3; D6; J6; O2
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