Paper #659

Title:

Incomplete markets, labor supply and capital accumulation

Authors:

Albert Marcet, Francesc Obiols-Homs and Philippe Weil

Date:

October 2002 (Revised: October 2003)

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,wealsofind 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 codes:

D52, D58, J22

Area of Research:

Macroeconomics and International Economics

Published in:

Journal of Monetary Economics, forthcoming

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