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Produce or speculate? Asset bubbles, occupational choice and efficiency

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  • Cahuc, P.
  • Challe, E.

Abstract

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities. Classification-JEL: E22; E44; G21.

Suggested Citation

  • Cahuc, P. & Challe, E., 2010. "Produce or speculate? Asset bubbles, occupational choice and efficiency," Working papers 298, Banque de France.
  • Handle: RePEc:bfr:banfra:298
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    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:

    1. Cecchetti, Stephen G & Kharroubi, Enisse, 2015. "Why does financial sector growth crowd out real economic growth?," CEPR Discussion Papers 10642, C.E.P.R. Discussion Papers.
    2. Stefan Arping, 2013. "Proprietary Trading and the Real Economy," Tinbergen Institute Discussion Papers 13-032/IV/DSF52, Tinbergen Institute.
    3. 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.
    4. Shakhnov, Kirill, 2014. "The allocation of talent: finance versus entrepreneurship," Economics Working Papers ECO2014/13, European University Institute.
    5. Casey Rothschild & Florian Scheuer, 2016. "Optimal Taxation with Rent-Seeking," Review of Economic Studies, Oxford University Press, vol. 83(3), pages 1225-1262.
    6. Biswas, Siddhartha & Hanson, Andrew & Phan, Toan, 2018. "Bubbly Recessions," Working Paper 18-5, Federal Reserve Bank of Richmond.
    7. Frédéric TEULON, 2014. "CEO compensation and topmanagement incentives. Internal or social problems ?," Working Papers 2014-187, Department of Research, Ipag Business School.
    8. Vuillemey, Guillaume & Wasmer, Etienne, 2016. "Frictional Unemployment with Stochastic Bubbles," CEPR Discussion Papers 11561, C.E.P.R. Discussion Papers.
    9. Stephen Cecchetti & Enisse Kharroubi, 2012. "Reassessing the impact of finance on growth," BIS Working Papers 381, Bank for International Settlements.
    10. Boustanifar, Hamid & Grant, Everett & Reshef, Ariell, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization and Monetary Policy Institute Working Paper 266, Federal Reserve Bank of Dallas.
    11. 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," Annual Conference 2016 (Augsburg): Demographic Change 145688, Verein für Socialpolitik / German Economic Association.
    12. 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.
    13. 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.
    14. Guillaume Vuillemey & Etienne Wasmer, 2016. "Frictional Unemployment and Stochastic Bubbles," Sciences Po publications 10265, Sciences Po.

    More about this item

    Keywords

    Rational bubbles; occupational choice; dynamic efficiency.;

    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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