Consumption efficiency hypothesis and the HOS model: Some counterintuitive results

Chaudhuri, Sarbajit and Banerjee, Dibyendu (2007): Consumption efficiency hypothesis and the HOS model: Some counterintuitive results. Unpublished.

Abstract

We show how accommodation of the consumption efficiency hypothesis can explain the existence of involuntary unemployment in the two-by-two Heckscher-Ohlin-Samuelson (HOS) model. Although the workers consume both the commodities their nutritional efficiency depends on the consumption of one commodity only. An increase in the relative price of the capital-intensive (labour-intensive) good raises (lowers) the effective employment in the economy. The effects of commodity price changes on the output levels of the two sectors might be perverse. These results are different from the standard HOS results.

• Item Type: MPRA Paper
• Institution: University of Calcutta
• Language: English
• Keywords: Consumption efficiency hypothesis; General equilibrium; Heckscher-Ohlin-Samuelson model; Effective employment; Output composition
• Subjects: O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources; Human Development; Income Distribution; Migration; J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets

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