The Shadow Wage Rate and the Numbers Effect

Public Finance / Finances Publiques, No. 2/1991 Vol.  XXXXVI/XXXXVIiéme Année 

Posted: 7 Nov 2018

Date Written: 1991

Abstract

The Shadow Wage Rate (SWR), like any shadow price, is a function of the social objectives set for the particular country. Brent [1984 and 1986] has argued that one should consider the number of uncompensated losers from a public investment as a third social objective (together with the usual efficiency and distributional objectives). This paper explores the implications for the SWR of Quire and van der Tak [1976] (S & T) of having this third objective. It uses a simple optimal control model of the type used by Lal and Squire [1980] to derive the SWR. The general implications for S & T's methods of including the numbers effect have been explored in Brent [1990]. It will be via a concern for employment that the numbers effect will enter the SWR. Employment has long been an important consideration for policy makers. Now analysts can have a vehicle for incorporating this consideration. 

Suggested Citation

Brent, Robert J, The Shadow Wage Rate and the Numbers Effect (1991). Public Finance / Finances Publiques, No. 2/1991 Vol.  XXXXVI/XXXXVIiéme Année , Available at SSRN: https://ssrn.com/abstract=3279630

Robert J Brent (Contact Author)

Fordham University ( email )

Department of Economics
441 E Fordham Road
Bronx, NY 10458
United States
718 817 4058 (Phone)

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