A closed-form solution to the continuous-time consumption model with endogenous labor income

Aihua Zhang

No 710, CRIEFF Discussion Papers from Centre for Research into Industry, Enterprise, Finance and the Firm

Abstract: In this paper, we study an intertemporal maximization problem of an infinitely-lived individual who faces both labor income and asset return uncertainty. Given the growth rate of wage, the uncertainty of labor income is caused by the stochastic labor supply which is to be determined upon the available market information. Closed forms of consumption, labor supply and portfolio are obtained analytically by means of the martingale method. The Euler equation under uncertainty is established.

Keywords: Consumption; Labor Supply; Portfolio; Euler equation; Martingale (search for similar items in EconPapers)
JEL-codes: C61 C73 G1 J22 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-dge
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