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Produce Or Speculate? Asset Bubbles, Occupational Choice, And Efficiency

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  • Pierre Cahuc
  • Edouard Challe

Abstract

We study the effects of rational asset bubbles in an overlapping‐generations economy where asset trading requires specialized intermediaries and agents freely choose between working in the production or the financial sector. Frictions in the market for deposits create rents in the financial sector that affect agents’ occupational choices. When rents are large, the private gains associated with trading bubbles lead too many agents to become speculators, causing bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then bubbles displace skilled workers away from the productive sector and raise income inequalities.

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  • Pierre Cahuc & Edouard Challe, 2012. "Produce Or Speculate? Asset Bubbles, Occupational Choice, And Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1105-1131, November.
  • Handle: RePEc:wly:iecrev:v:53:y:2012:i:4:p:1105-1131
    DOI: j.1468-2354.2012.00713.x
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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Produce or speculate? Asset bubbles, occupational choice and efficiency
      by maximorossi in NEP-LTV blog on 2010-11-12 19:11:54

    Citations

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    Cited by:

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    3. Casey Rothschild & Florian Scheuer, 2016. "Optimal Taxation with Rent-Seeking," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1225-1262.
    4. Stephen G. Cecchetti & Enisse Kharroubi, 2019. "Why Does Credit Growth Crowd Out Real Economic Growth?," Manchester School, University of Manchester, vol. 87(S1), pages 1-28, September.
    5. Beck, Thorsten & Degryse, Hans & Kneer, Christiane, 2014. "Is more finance better? Disentangling intermediation and size effects of financial systems," Journal of Financial Stability, Elsevier, vol. 10(C), pages 50-64.
    6. repec:hal:spmain:info:hdl:2441/3tjqcugffh9i1qqufo79qh86il is not listed on IDEAS
    7. Arnold, Lutz G. & Zelzner, Sebastian, 2022. "Financial trading versus entrepreneurship: Competition for talent and negative feedback effects," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 186-199.
    8. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2018. "Wages and Human Capital in Finance: International Evidence, 1970–2011 [Financial reform: what shakes it? What shapes it?]," Review of Finance, European Finance Association, vol. 22(2), pages 699-745.
    9. Pierre Cahuc & Edouard Challe, 2012. "Produce Or Speculate? Asset Bubbles, Occupational Choice, And Efficiency," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(4), pages 1105-1131, November.
    10. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    11. Liu, Guanchun & Liu, Yuanyuan & Zhang, Chengsi, 2021. "Human capital in the financial sector and corporate debt maturity," China Economic Review, Elsevier, vol. 69(C).
    12. Guillaume Vuillemey & Etienne Wasmer, 2016. "Frictional Unemployment and Stochastic Bubbles," Working Papers hal-03393187, HAL.
    13. Vuillemey, Guillaume & Wasmer, Etienne, 2020. "Frictional unemployment with stochastic bubbles," European Economic Review, Elsevier, vol. 122(C).
    14. Kirill Shakhnov, 2022. "The Allocation of Talent: Finance versus Entrepreneurship," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 161-195, October.
    15. Hirano, Tomohiro & Toda, Alexis Akira, 2024. "Bubble economics," LSE Research Online Documents on Economics 122042, London School of Economics and Political Science, LSE Library.
    16. Kneer, E.C., 2013. "Essays on the size of the financial aector, financial liberalization and growth," Other publications TiSEM e0f0b672-ce74-40a3-8222-2, Tilburg University, School of Economics and Management.
    17. Stefan Arping, 2013. "Proprietary Trading and the Real Economy," Tinbergen Institute Discussion Papers 13-032/IV/DSF52, Tinbergen Institute.
    18. Guillaume Vuillemey & Etienne Wasmer, 2016. "Frictional Unemployment and Stochastic Bubbles," SciencePo Working papers hal-03393187, HAL.
    19. Tobias Wuergler, 2009. "Of bubbles and bankers: The impact of financial booms on labor markets," IEW - Working Papers 460, Institute for Empirical Research in Economics - University of Zurich.
    20. Arnold, Lutz Georg & Arnold, Lutz & Zelzner, Sebastian, 2016. "The Allocation of Talent to Financial Trading versus Production: Welfare and Employment Effects of Trading in General Equilibrium," VfS Annual Conference 2016 (Augsburg): Demographic Change 145688, Verein für Socialpolitik / German Economic Association.
    21. Oz Shy & Rune Stenbacka, 2019. "Bank competition, real investments, and welfare," Journal of Economics, Springer, vol. 127(1), pages 73-90, June.
    22. Frédéric TEULON, 2014. "CEO compensation and topmanagement incentives. Internal or social problems ?," Working Papers 2014-187, Department of Research, Ipag Business School.
    23. Benhabib, Jess & Hager, Mildred, 2021. "Revenue diversion, the allocation of talent, and income distribution," Mathematical Social Sciences, Elsevier, vol. 112(C), pages 138-144.
    24. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization Institute Working Papers 266, Federal Reserve Bank of Dallas.

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    More about this item

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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