Stochastic Optimal Growth with Risky Labor Supply
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.
stochastic stability, elastic labor, optimal growth
C61, C62, O41
Complex Systems Science, CSIRO, Australia
Research Institute for Economics and Business Administration
Rokkodai-cho, Nada-ku, Kobe
Research School of Economics, Australian National University