Optimal Employment in Frictional Business Cycles and Intertemporal Discontinuity of Demand Duals and Production

Koji Yokota ()
Authors registered in the RePEc Author Service: 横田 宏治

No 42, Discussion Papers from Meisei University, School of Economics

Abstract: The present paper studies the optimal behavior of the firm facing labor friction characterized by convex hiring cost and sufficiently differentiated output good. The problem turns out to be a singular control problem. General paths are studied including socially inefficient ones caused by the rise of demand constraint. Analysis of optimal firing behavior becomes possible with this setup. It turns out that the singularity brings costate jumps at junction points to the firing phase, which result in the discontinuity of production. Those jumps have been known to occur in problems with inequality constraints that contain only state variables. The present model shows that they can occur with inequality constraints with control variables when singularity is present.

Keywords: labor friction; business cycles; effective demand; optimal firing; labor hoarding; singular control (search for similar items in EconPapers)
JEL-codes: C6 E3 J2 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2018-12, Revised 2019-02-02
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:mei:wpaper:42

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