Incomplete Markets, Labor Supply and Capital Accumulation

UPF Economics and Business Working Paper No. 659

29 Pages Posted: 16 Jun 2003

See all articles by Albert Marcet

Albert Marcet

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Centre for Economic Policy Research (CEPR)

Francesc Obiols-Homs

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Date Written: October 2002

Abstract

In this paper we explore the accumulation of capital in the presence of limited insurance against idiosyncratic shocks, borrowing constraints and endogenous labor supply. As in the exogenous labor supply case (e.g. Aiyagari 1994, Huggett 1997), we find that steady states are characterized with an interest rate smaller than the rate of time preference. However, we also find that when labor supply is endogenous the presence of uncertainty and a borrowing limit are not enough to give rise to "aggregate precautionary savings".

Keywords: Idiosyncratic Shocks, Incomplete Insurance, Labor Supply

JEL Classification: D52, D58, J22

Suggested Citation

Marcet, Albert and Obiols-Homs, Francesc and Weil, Philippe, Incomplete Markets, Labor Supply and Capital Accumulation (October 2002). UPF Economics and Business Working Paper No. 659. Available at SSRN: https://ssrn.com/abstract=394925 or http://dx.doi.org/10.2139/ssrn.394925

Albert Marcet (Contact Author)

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain
+34 93 542 2740 (Phone)
+34 93 542 1746 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Francesc Obiols-Homs

Instituto Tecnológico Autónomo de México (ITAM) - Centro de Investigacion Economica ( email )

Av. Camino a Santa Teresa #930
Col. Heroes de Padierna
Mexico City, D.F. 10370
Mexico D.F.

Philippe Weil

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

Ave. Franklin D Roosevelt, 50 - C.P. 114
Brussels, B-1050
Belgium
+32 2 650 4220 (Phone)
+32 2 650 4475 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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