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Stochastic optimal growth with risky labor supply

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  • Cai, Yiyong
  • Kamihigashi, Takashi
  • Stachurski, John

Abstract

Production takes time, and labor supply and profit maximization decisions that relate to current production are typically made before all shocks affecting that production have been realized. In this paper we re-examine the problem of stochastic optimal growth with aggregate risk where the timing of the model conforms to this information structure. We provide a set of conditions under which the economy has a unique, nontrivial and stable stationary distribution. In addition, we verify key optimality properties in the presence of unbounded shocks and rewards, and provide the sample path laws necessary for consistent estimation and simulation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 50 (2014)
Issue (Month): C ()
Pages: 167-176

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Handle: RePEc:eee:mateco:v:50:y:2014:i:c:p:167-176

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Web page: http://www.elsevier.com/locate/jmateco

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Keywords: Stochastic stability; Elastic labor; Optimal growth;

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Cited by:
  1. Yiyong Cai & Takashi Kamihigashi & John Stachurski, 2012. "Stochastic Optimal Growth with Risky Labor Supply," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2012-24, Research Institute for Economics & Business Administration, Kobe University.
  2. Takashi Kamihigashi, 2014. "Multiple Interior Steady States in the Ramsey Model with Elastic Labor Supply," Discussion Paper Series, Research Institute for Economics & Business Administration, Kobe University DP2014-11, Research Institute for Economics & Business Administration, Kobe University.

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