PRODUCE OR SPECULATE? ASSET BUBBLES, OCCUPATIONAL CHOICE, AND EFFICIENCY

Pierre Cahuc and Edouard Challe

International Economic Review, 2012, vol. 53, issue 4, 1105-1131

Abstract: We study the effects of rational asset bubbles in an overlapping‐generations economy where asset trading requires specialized intermediaries and agents freely choose between working in the production or the financial sector. Frictions in the market for deposits create rents in the financial sector that affect agents’ occupational choices. When rents are large, the private gains associated with trading bubbles lead too many agents to become speculators, causing bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then bubbles displace skilled workers away from the productive sector and raise income inequalities.

Date: 2012
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https://doi.org/10.1111/j.1468-2354.2012.00713.x

Related works:
Working Paper: Produce or speculate? Asset bubbles, occupational choice and efficiency (2010)
Working Paper: Produce or Speculate? Asset Bubbles, Occupational Choice and Efficiency (2009)
Working Paper: Produce or Speculate? Asset Bubbles, Occupational Choice and Efficiency (2009)
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