Abstract
This paper analyses the 'Dutch Disease' as a phenomenon arising from incomplete information in the labour markets of resource-exporting countries. Imperfect observation of labour quality in the manufacturing (traded) sector leads to the payment of an efficiency wage in this sector which exceeds the opportunity cost of low quality workers. The presence of such an imperfection in a resource-exporting economy is an externality that calls for government intervention in the form of wage subsidy to the manufacturing sector. It is also shown that in the event of an oil boom, to prevent its perverse effects due to deindustrialization, the optimal wage subsidy should be unambiguously increased.
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