Produce or speculate? Asset bubbles, occupational choice and efficiency

Pierre Cahuc and Edouard Challe

Working papers from Banque de France

Abstract: We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities. Classification-JEL: E22; E44; G21.

Keywords: Rational bubbles; occupational choice; dynamic efficiency. (search for similar items in EconPapers)
Pages: 41 pages
Date: 2010
New Economics Papers: this item is included in nep-dge, nep-ltv and nep-mac
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https://publications.banque-france.fr/sites/defaul ... g-paper_298_2010.pdf (application/pdf)

Related works:
Journal Article: PRODUCE OR SPECULATE? ASSET BUBBLES, OCCUPATIONAL CHOICE, AND EFFICIENCY (2012)
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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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:298

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