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Heterogeneity, Adverse Selection and Valuation with Endogenous Labor Supply

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  • Marcelo Bianconi

Abstract

This paper considers models of intratemporal consumption-labor choice and intertemporal consumption choice under heterogeneity and private information in preferences towards labor. We show that market regime regarding unemployment insurance is important to determine the effects of heterogeneity and private information on allocations and valuations. There are two main results. First, intertemporal choice can mitigate adverse selection. Second, in countries where unemployment insurance is generous capital markets should have low usage and the risk-free rate of return is low. However, in countries where unemployment insurance is less generous, capital markets should have more usage and the risk-free rate of return is higher.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0412.

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Date of creation: 2004
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Handle: RePEc:tuf:tuftec:0412

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Keywords: private information; adverse selection; lottery; unemployment insurance; incomplete markets;

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