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Stochastic Optimal Growth with Risky Labor Supply

  • Yiyong Cai

    (Complex Systems Science, CSIRO, Australia)

  • Takashi Kamihigashi

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • John Stachurski

    (Research School of Economics, Australian National University, Australia)

Production takes time, and labor supply and profit maximization decisions that relate to current production are typically made before all shocks affecting that production have been realized. In this paper we re-examine the problem of stochastic optimal growth with aggregate risk where the timing of the model conforms to this information structure. We provide a set of conditions under which the economy has a unique, nontrivial and stable stationary distribution. In addition, we verify key optimality properties in the presence of unbounded shocks and rewards, and provide the sample path laws necessary for consistent estimation and simulation.

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File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2012-24.pdf
File Function: First version, 2012
Download Restriction: no

Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2012-24.

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Length: 29 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:kob:dpaper:dp2012-24
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  1. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 39-69, February.
  2. Yiyong Cai & Takashi Kamihigashi & John Stachurski, 2012. "Stochastic Optimal Growth with Risky Labor Supply," ANU Working Papers in Economics and Econometrics 2012-585, Australian National University, College of Business and Economics, School of Economics.
  3. Yuzhe Zhang, 2005. "Stochastic optimal growth with a non-compact state space," Working Papers 639, Federal Reserve Bank of Minneapolis.
  4. Aditya Goenka & Cuong Le Van & Manh-Hung Nguyen, 2011. "Existence of competitive equilibrium in an optimal growth model with heterogeneous agents and endogenous leisure," Working Papers 21, Development and Policies Research Center (DEPOCEN), Vietnam.
  5. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  6. Mirman, Leonard J. & Zilcha, Itzhak, 1975. "On optimal growth under uncertainty," Journal of Economic Theory, Elsevier, vol. 11(3), pages 329-339, December.
  7. Steven N. Durlauf & Danny T. Quah, 1998. "The New Empirics of Economic Growth," Working Papers 98-01-012, Santa Fe Institute.
  8. Jeremy Greenwood & Gregory W. Huffman, 1993. "On the existence of nonoptimal equilibria in dynamic stochastic economies," Research Paper 9330, Federal Reserve Bank of Dallas.
  9. Nishimura, Kazuo & Stachurski, John, 2005. "Stability of stochastic optimal growth models: a new approach," Journal of Economic Theory, Elsevier, vol. 122(1), pages 100-118, May.
  10. repec:cup:cbooks:9780521532723 is not listed on IDEAS
  11. Balbus, Łukasz & Reffett, Kevin & Woźny, Łukasz, 2012. "Stationary Markovian equilibrium in altruistic stochastic OLG models with limited commitment," Journal of Mathematical Economics, Elsevier, vol. 48(2), pages 115-132.
  12. Takashi Kamihigashi, 2005. "Stochastic Optimal Growth with Bounded or Unbounded Utility and with Bounded or Unbounded Shocks," Discussion Paper Series 176, Research Institute for Economics & Business Administration, Kobe University.
  13. Brock, William A & Mirman, Leonard J, 1973. "Optimal Economic Growth and Uncertainty: The No Discounting Case," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(3), pages 560-73, October.
  14. Brock, William A. & Mirman, Leonard J., 1972. "Optimal economic growth and uncertainty: The discounted case," Journal of Economic Theory, Elsevier, vol. 4(3), pages 479-513, June.
  15. Aditya Goenka & Cuong Le Van & Manh-Hung Nguyen, 2011. "Existence of competitive equilibrium in an optimal growth model with heterogeneous agents and endogenous leisure," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00593945, HAL.
  16. Donaldson, John B. & Mehra, Rajnish, 1983. "Stochastic growth with correlated production shocks," Journal of Economic Theory, Elsevier, vol. 29(2), pages 282-312, April.
  17. Datta, Manjira & Mirman, Leonard J. & Reffett, Kevin L., 2002. "Existence and Uniqueness of Equilibrium in Distorted Dynamic Economies with Capital and Labor," Journal of Economic Theory, Elsevier, vol. 103(2), pages 377-410, April.
  18. Hopenhayn, Hugo A & Prescott, Edward C, 1992. "Stochastic Monotonicity and Stationary Distributions for Dynamic Economies," Econometrica, Econometric Society, vol. 60(6), pages 1387-406, November.
  19. Stefano Bosi & Cuong Le Van, 2011. "On the Existence of a Ramsey Equilibrium with Endogenous Labor Supply and Borrowing Constraints," Working Papers 24, Development and Policies Research Center (DEPOCEN), Vietnam.
  20. Takashi Kamihigashi & John Stachurski, 2010. "Stochastic Stability in Monotone Economies," Discussion Paper Series DP2010-12, Research Institute for Economics & Business Administration, Kobe University.
  21. repec:cup:cbooks:9780521825658 is not listed on IDEAS
  22. Stachurski, J., 2001. "Stochastic Optimal Growth with Unbounded Shock," Department of Economics - Working Papers Series 777, The University of Melbourne.
  23. John Stachurski, 2009. "Economic Dynamics: Theory and Computation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012774, June.
  24. Gary Hansen, 2010. "Indivisible Labor and the Business Cycle," Levine's Working Paper Archive 233, David K. Levine.
  25. Coleman, Wilbur II, 1997. "Equilibria in Distorted Infinite-Horizon Economies with Capital and Labor," Journal of Economic Theory, Elsevier, vol. 72(2), pages 446-461, February.
  26. Takashi Kamihigashi & John Stachurski, 2011. "Existence, Stability and Computation of Stationary Distributions: An Extension of the Hopenhayn-Prescott Theorem," Discussion Paper Series DP2011-32, Research Institute for Economics & Business Administration, Kobe University.
  27. repec:hal:journl:halshs-00612131 is not listed on IDEAS
  28. Razin, Assaf & Yahav, Joseph A, 1979. "On Stochastic Models of Economic Growth," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 20(3), pages 599-604, October.
  29. Brock, W. A. & Majumdar, M., 1978. "Global asymptotic stability results for multisector models of optimal growth under uncertainty when future utilities are discounted," Journal of Economic Theory, Elsevier, vol. 18(2), pages 225-243, August.
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