We model adjustment costs in a general-equilibrium setting using a 'transport sector'. This sector provides services needed to reallocate a factor of production across two other sectors. A market imperfection in the transport sector causes adjustment to occur too slowly in the absence of...

We compare the advantages of targeting either the growing sector or the shrinking sector in an economy where migration occurs too slowly, and the government has only second-best policy instruments. If the government is able to make commitments, we show (in a special case) that it should target...