Produce or Speculate? Asset Bubbles, Occupational Choice and Efficiency

Pierre Cahuc and Edouard Challe

No 4630, IZA Discussion Papers from Institute of Labor Economics (IZA)

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.

Keywords: dynamic efficiency; occupational choice; rational bubbles (search for similar items in EconPapers)
JEL-codes: E22 E44 G21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2009-12
New Economics Papers: this item is included in nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published - published in: International Economic Review, 2012, 53 (4), 1005-1035.

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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 (2010)
Working Paper: Produce or Speculate? Asset Bubbles, Occupational Choice and Efficiency (2009)
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