The name is absent



(4)

where proposition 1 implies that Ia — 1, Iav, and IapAV. Equilib-
rium under autarky requires that the following market clearing conditions
for sectors
X and Y respectively, are satisfied:

V0ft — 2


PA ($l + v@-m) + V@h


θι + m — 1 θl + m + pAV0h\

where in both conditions the left-hand side equals the supply of that good
and the right-hand side equals the corresponding demand. Solving either of
the above market clearing conditions for the equilibrium autarky price we

get:


A   θι + m

(5)


ph

It also follows from proposition 1 that 1 > pA υV.

4.1 Optimal education policy

The optimal education policy corresponds to the solution of the following
program:

1

max|{(θι + m) ( ɪɔ + h (pA) 2 }

Oi 2              pA J

(p'''' 2 θl + υθm + V0hpA\                         (6)

subject to (5),

θh — 1 - θι - θm                          (7)

and

βm C(1 - ,, >- b                         (S)

c 1

where the last two constraints follow from (1) and (2).

The optimal proportion of type I workers under autarky is:

«A


1 b c + be bv + 2cv bcv


2(1 c + )


(9)


12




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