Trade Adjustment Assistance: Welfare and Incentive Effects of Payments to Displaced Workers
James A. Brander
Barbara J. Spencer
We analyze the welfare effects of conditional trade adjustment assistance
(i.e. assistance that is received only if displaced workers remain unemployed),
and compare the conditional program with unconditional assistance. Taking the
level of assistance as exogenous, we show that either the conditional or
unconditional program may impose greater efficiency costs, depending on
underlying parameters. We then introduce an explicit social welfare function
and solve for the optimal level of assistance for each program. Finally, we
compare the optimized values of the two programs. If the distribution of wage
offers is uniform, the unconditional program is welfare superior.
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