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Indivisible Labor, Lotteries And Idiosyncratic Productivity Shocks

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  • Lilia Maliar

    ()
    (Universidad de Alicante)

  • Serguei Maliar

    (Universidad de Alicante)

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

Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number 2003-38.

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Length: 28 pages
Date of creation: Nov 2003
Date of revision:
Publication status: Published by Ivie
Handle: RePEc:ivi:wpasad:2003-38

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Keywords: indivisible labor; lotteries; idiosyncratic shocks; neoclassical growth model;

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References

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  1. 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.
  2. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
  3. Finn E. Kydland, 1993. "Business cycles and aggregate labor-market fluctuations," Working Paper 9312, Federal Reserve Bank of Cleveland.
  4. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  5. Marianne Baxter & Mario J. Crucini, 1994. "Business Cycles and the Asset Structure of Foreign Trade," NBER Working Papers 4975, National Bureau of Economic Research, Inc.
  6. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  7. 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.
  8. Christiano, Lawrence J & Eichenbaum, Martin, 1992. "Current Real-Business-Cycle Theories and Aggregate Labor-Market Fluctuations," American Economic Review, American Economic Association, vol. 82(3), pages 430-50, June.
  9. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
  10. Eswar Prasad, 1996. "Skill Heterogeneity and the Business Cycle," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 910-29, November.
  11. Lilia Maliar & Serguei Maliar, 2002. "The Representative Consumer In The Neoclassical Growth Model With Idiosyncratic Shocks," Working Papers. Serie AD 2002-20, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. S. Rao Aiyagari, 1993. "Uninsured idiosyncratic risk and aggregate saving," Working Papers 502, Federal Reserve Bank of Minneapolis.
  13. Maliar, Lilia & Maliar, Serguei, 2000. "Differential Responses of Labor Supply across Productivity Groups," Journal of Macroeconomics, Elsevier, vol. 22(1), pages 85-108, January.
  14. Cho, Jang-Ok, 1995. "Ex post heterogeneity and the business cycle," Journal of Economic Dynamics and Control, Elsevier, vol. 19(3), pages 533-551, April.
  15. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  16. 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.
  17. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
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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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