Aggregation with non-convex labor supply, unobservable effort, and efficiency wages of the no-shirking type
Abstract
The purpose of this note is to explore the problem of non-convex labor supply decision in an economy with imperfect observability of work effort, and the need to use effciency wages to prevent shirking as in Shapiro and Stiglitz 1984. In addition, the paper and explicitly performs the aggregation presented in Vasilev 2017 without a formal proof, and thus provide - starting from micto-foundations - the derivation of the expected utility functions used for the aggregate household. We show how lotteries as in Rogerson 1988 can be used to convexify consumption sets, and aggregate over individual preferences. With a discrete labor supply decisions, the elasticity of aggregate labor supply increases from unity to infinity.
References
[2] Burnside, C. and M. Eichenbaum (1996). Factor Hoarding and the Propagation of Business Cycle Shocks. American Economic Review 86, 1154-74.
[3] Burnside, C., M. Eichenbaum, and J. Fisher (2000). Fiscal Shocks in an Efficiency Wage Model. NBER Working Paper. No. 7515.
[4] Burnside, C., M. Eichenbaum, and S. Rebelo (1993). Labor Hoarding and the Business Cycle. Journal of Political Economy 101 (2), 245-273.
[5] Hansen, G. (1985). Indivisible labor and the business cycle. Journal of Monetary Economics 16 (3), 309-328.
[6] Rogerson, R. (1988). Indivisible labor, lotteries and equilibrium. Journal of Monetary Economics 21 (1), 3-16.
[7] Shapiro, C. and J. E. Stiglitz (1984). Equilibrium unemployment as a worker discipline device. American Economic Review 36, 1291-1303.
[8] Vasilev, A. Z. (2017). A Real-Business-Cycle model with efficiency wages and fiscal policy: the case of Bulgaria. Bulgarian Economic papers. 01-2017, Center for Economic Theories and Policies, Sofia University St. Kliment Ohridski, Sofia, Bulgaria.
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.