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Indivisible-labor, lotteries and idiosyncratic productivity shocks

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  • Maliar, Lilia
  • Maliar, Serguei

Abstract

This paper extends the indivisible-labor model by Hansen (1985) and Rogerson (1988) to include multiple consumers who differ in initial wealth and whose labor productivities are subject to idiosyncratic shocks. In the presence of idiosyncratic uncertainty, the optimal allocations for the individual employment probabilities are at corners: agents work with probability one (zero) when their productivities are high (low). As in Hansen (1985), each agent in our indivisible-labor economy behaves as if her labor choice was divisible and her utility function was linear in hours worked. However, the quasi-linearity of the social preferences, established in Hansen (1985) for the homogeneous-agent case, does not survive after the introduction of idiosyncratic shocks.

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Bibliographic Info

Article provided by Elsevier in its journal Mathematical Social Sciences.

Volume (Year): 48 (2004)
Issue (Month): 1 (July)
Pages: 23-35

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Handle: RePEc:eee:matsoc:v:48:y:2004:i:1:p:23-35

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Web page: http://www.elsevier.com/locate/inca/505565

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References

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  1. Constantinides, George M, 1982. "Intertemporal Asset Pricing with Heterogeneous Consumers and without Demand Aggregation," The Journal of Business, University of Chicago Press, vol. 55(2), pages 253-67, April.
  2. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
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  5. Lilia Maliar & Serguei Maliar, 1999. "- Differential Responses Of Labor Supply Across Productivity Groups," Working Papers. Serie AD 1999-22, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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  8. Rogerson, Richard, 1988. "Indivisible labor, lotteries and equilibrium," Journal of Monetary Economics, Elsevier, vol. 21(1), pages 3-16, January.
  9. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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  13. Lilia Maliar & Serguei Maliar, 2003. "The Representative Consumer in the Neoclassical Growth Model with Idiosyncratic Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 368-380, April.
  14. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  15. Castaneda, Ana & Diaz-Gimenez, Javier & Rios-Rull, Jose-Victor, 1998. "Exploring the income distribution business cycle dynamics," Journal of Monetary Economics, Elsevier, vol. 42(1), pages 93-130, June.
  16. Martin Browning & Lars Peter Hansen & James J. Heckman, 1999. "Micro Data and General Equilibrium Models," Discussion Papers 99-10, University of Copenhagen. Department of Economics.
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Cited by:
  1. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland.

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