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Stochastic Optimal Growth with Risky Labor Supply

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  • Yiyong Cai

    (Complex Systems Science, CSIRO, Australia)

  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • John Stachurski

    (Research School of Economics, Australian National University, Australia)

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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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-24.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2012-24.

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Length: 29 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:kob:dpaper:dp2012-24

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References

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  1. Takashi Kamihigashi, 2006. "Stochastic Optimal Growth with Bounded or Unbounded Utility and with Bounded or Unbounded Shocks," Discussion Paper Series 189, Research Institute for Economics & Business Administration, Kobe University.
  2. Greenwood Jeremy & Huffman Gregory W., 1995. "On the Existence of Nonoptimal Equilibria in Dynamic Stochastic Economies," Journal of Economic Theory, Elsevier, vol. 65(2), pages 611-623, April.
  3. Yuzhe Zhang, 2005. "Stochastic optimal growth with a non-compact state space," Working Papers 639, Federal Reserve Bank of Minneapolis.
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  6. Cai, Yiyong & Kamihigashi, Takashi & Stachurski, John, 2014. "Stochastic optimal growth with risky labor supply," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 167-176.
  7. Stachurski, J., 2001. "Stochastic Optimal Growth with Unbounded Shock," Department of Economics - Working Papers Series 777, The University of Melbourne.
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  19. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
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  23. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2012. "Stationary Markovian equilibrium in altruistic stochastic OLG models with limited commitment," Journal of Mathematical Economics, Elsevier, vol. 48(2), pages 115-132.
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  26. Takashi Kamihigashi & John Stachurski, 2011. "Existence, Stability and Computation of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2011-32, Research Institute for Economics & Business Administration, Kobe University.
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  28. repec:hal:journl:halshs-00612131 is not listed on IDEAS
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Citations

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Cited by:
  1. Takashi Kamihigashi, 2014. "Multiple Interior Steady States in the Ramsey Model with Elastic Labor Supply," Working Papers 2014-158, Department of Research, Ipag Business School.
  2. Cai, Yiyong & Kamihigashi, Takashi & Stachurski, John, 2014. "Stochastic optimal growth with risky labor supply," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 167-176.

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