| A general equilibrium model is developed to explore the influence of adjustmentassistance (AA) on the division of labor. Under the conditions of increasing returns toscale and uncertainty in productivity in each industry, there is a trade-off betweenproductivity and risk. Our model shows that the availability of AA, which makesmore people change professions and hence reduces the risk of income, may promotethe division of labor. Next, since there is an externality due to the advance in divisionof labor, the availability of AA may lead to a Pareto improvement not only inexpected utility, but also in utility levels in some situations. |
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