On the Policy Intervention in the Harris-Todaro Model with Intersectoral Capital Mobility.

In the well-known analysis of the Harris-Todaro (1970) model, with perfect intersectoral mobility of capital, W. M. Corden and R. Findlay (1975) observe that an agricultural wage subsidy must improve welfare (over the laissez-faire level) as long as there is any urban unemployment. However, the present paper demonstrates that this conventional wisdom will not be valid if the shadow price of labor is negative, a possibility that can not be ruled out in the context of the Corden-Findlay model. Copyright 1988 by The London School of Economics and Political Science.