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Produce or speculate? Asset bubbles, occupational choice and efficiency

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  • Cahuc, P.
  • Challe, E.

Abstract

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities. Classification-JEL: E22; E44; G21.

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Bibliographic Info

Paper provided by Banque de France in its series Working papers with number 298.

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Length: 41 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:bfr:banfra:298

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Web page: http://www.banque-france.fr/
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Keywords: Rational bubbles; occupational choice; dynamic efficiency.;

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  1. Produce or speculate? Asset bubbles, occupational choice and efficiency
    by maximorossi in NEP-LTV blog on 2010-11-12 13:11:54
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Cited by:
  1. Beck, T.H.L. & Degryse, H.A. & Kneer, E.C., 2012. "Is More Finance Better? Disentangling Intermediation and Size Effects of Financial Systems," Discussion Paper 2012-060, Tilburg University, Center for Economic Research.
  2. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
  3. Tobias Wuergler, 2009. "Of bubbles and bankers: The impact of financial booms on labor markets," IEW - Working Papers 460, Institute for Empirical Research in Economics - University of Zurich.

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