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Stochastic Optimal Growth with Risky Labor Supply

  • Yiyong CAI

    (CSIRO Centre for Complex Systems Science, Commonwealth Scientific and Industrial Research Organisation, Australia and Centre for Applied Macroeconomic Analysis, Australian National University)

  • 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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Paper provided by Research Institute for Economics & Business Administration, Kobe University in its series Discussion Paper Series with number DP2013-23.

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Length: 27 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:kob:dpaper:dp2013-23
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  1. repec:hal:journl:halshs-00612131 is not listed on IDEAS
  2. Cai, Yiyong & Kamihigashi, Takashi & Stachurski, John, 2014. "Stochastic optimal growth with risky labor supply," Journal of Mathematical Economics, Elsevier, vol. 50(C), pages 167-176.
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