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On the Cyclical Allocation of Risk

  • Gomme, P.
  • Greenwood, J.

A real business cycle model with heterogeneous agents is parameterized, calibrated, and simulated to see if it can account for some stylized facts characterizing postwar U.S. business cycle fluctuations, such as the countercyclical movement of labor’s share of income, and the acyclical behavior of real wages. There are two types of agents in the model, workers and entrepreneurs, who participate on an economy-wide market for contingent claims. On this market workers purchase insurance from entrepreneurs, through optimal labor contracts, against losses in income due to business cycle fluctuations. The model is used to study the allocation of risk and the distribution of income over the business cycle.

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Paper provided by University of Rochester - Center for Economic Research (RCER) in its series RCER Working Papers with number 355.

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Date of creation: 1993
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Handle: RePEc:roc:rocher:355
Contact details of provider: Postal: University of Rochester, Center for Economic Research, Department of Economics, Harkness 231 Rochester, New York 14627 U.S.A.

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