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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Paper provided by Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie) in its series Working Papers. Serie AD with number
2003-38.
Find related papers by JEL classification: J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings D33 - Microeconomics - - Distribution - - - Factor Income Distribution
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Baxter, Marianne & Crucini, Mario J, 1995.
"Business Cycles and the Asset Structure of Foreign Trade,"
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