Solving for the Retirement Age in a Continuous-time Model with Endogenous Labor Supply
This paper studies a continuous-time life-cycle model with a consumption-leisure choice made by a finitely-lived agent with a random lifetime. We explicitly account for the leisure constraint in the corresponding constrained optimal control problem with a commonly postulated solution structure, and provide a complete analytic solution of the problem. By solving both the constrained and unconstrained control formulations, we demonstrate the inaccuracy of the latter formulation (where an unconstrained leisure path gets truncated once it exceeds the time endowment limit) can indeed be significant. For cases when the subjective discount rate is quite close to or exceeds the interest rate, the optimal control path would not be consistent with the structure of the optimal solution so commonly postulated in applied studies.
|Date of creation:||13 Nov 2013|
|Contact details of provider:|| Postal: 221 Burwood Highway, Burwood 3125|
Phone: 61 3 9244 3815
Fax: +61 3 5227 2655
Web page: http://www.deakin.edu.au/buslaw/aef/index.php
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:dkn:econwp:eco_2013_5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dr Xueli Tang)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.