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On the Cyclical Allocation of Risk

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  • Gomme, P.
  • Greenwood, J.

Abstract

A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labor’s share of income, and the acyclical behavior of real wages. There are two types of agents in the model, workers and entrepreneurs, who participate on an economy-wide market for contingent claims. On this market workers purchase insurance from entrepreneurs, through optimal labor contracts, against losses in income due to business cycle fluctuations. The model is used to study the allocation of risk and the distribution of income over the business cycle.

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Bibliographic Info

Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 355.

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Date of creation: 1993
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Handle: RePEc:roc:rocher:355

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Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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Keywords: risk;

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References

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  18. Azariadis, Costas, 1978. "Escalator clauses and the allocation of cyclical risks," Journal of Economic Theory, Elsevier, vol. 18(1), pages 119-155, June.
  19. Edward N. Wolff & Marcia Marley, 1989. "Long-Term Trends in U.S. Wealth Inequality: Methodological Issues and Results," NBER Chapters, in: The Measurement of Saving, Investment, and Wealth, pages 765-844 National Bureau of Economic Research, Inc.
  20. Danthine, Jean-Pierre & Donaldson, John B., 1990. "Efficiency wages and the business cycle puzzle," European Economic Review, Elsevier, vol. 34(7), pages 1275-1301, November.
  21. Wright, Randall D, 1988. "The Observational Implications of Labor Contracts in a Dynamic General Equilibrium Model," Journal of Labor Economics, University of Chicago Press, vol. 6(4), pages 530-51, October.
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  24. Praschnik, J. & Costello, D.M., 1992. "Are Labor Shares Really Constant? An International Study of the Cyclical Behavior of Labr Shares," UWO Department of Economics Working Papers 9207, University of Western Ontario, Department of Economics.
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