NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Economics of Price Scissors

Raaj Kumar Sah, Joseph E. Stiglitz

NBER Working Paper No. 1156 (Also Reprint No. r0511)
Issued in June 1983
NBER Program(s):   PE

We analyze consequences of changing the terms of trade between agriculture and industry on capital accumulation and on welfare of workers in different sectors. The issue was central to Soviet industrialization debate and it remains important in today's developing world. Through a simple general equilibrium model, we show that a price squeeze on peasants increases accumulation (as Preobrazhensky argued), but it makes both urban and rural workers worse-off (contrary to Preobrazhensky's contention). The desirable changes in terms of trade are shown to depend on intertemporal valuations, but, within a range, not on rural-urban welfare trade-off. Our characterization of the optimal terms of trade is remarkably simple, in which the roleof welfare weights and of relevant empirical parameters are easily as certained.We then extend our analysis to economies with labor mobility and unemployment and, using a simple model with rigid industrial wage, show that the optimal terms of trade entail a tax on urban sector,a subsidy to rural sector, and a level of urban employment such that the urban wage exceeds the marginal product of urban worker.

download in pdf format
   (583 K)

email paper

This paper is available as PDF (583 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w1156

Published: Sah, Raaj Kumar and Joseph E. Stiglitz. "The Economics of Price Scissors." American Economic Review, Vol.74, No. 1, (March 1984), pp. 125-138.

Users who downloaded this paper also downloaded these:
Sah and Stiglitz w1338 Taxation and Pricing of Agricultural and Industrial Goods
Stiglitz w1566 Economics of Information and the Theory of Economic Development
Cagan High-Powered Money
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us