Heterogeneity, Efficiency, and Asset Allocation with Endogenous Labor Supply: The Static Case
We ask whether ex-post inefficiencies consistent with ex-ante efficiency in consumption and labor allocations are compatible with substantive movements in asset allocation. The answer we obtain depends crucially on the market regime relative to unemployment insurance. If there are complete markets for unemployment insurance, asset allocation movements are small in the presence of ex-post inefficiency. But if there are incomplete markets for unemployment insurance, asset allocation movements can be large. The direction of the asset movement is towards more diversification.
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|Date of creation:||01 Mar 1999|
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