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Computing General Equilibrium Models with Occupational Choice and Financial Frictions

António Antunes (), Tiago Cavalcanti () and Anne Villamil ()
Additional contact information
Anne Villamil: Department of Economics, University of Illinois at Urbana- Champaign

SCAPE Policy Research Working Paper Series from National University of Singapore, Department of Economics, SCAPE

Abstract: This paper establishes the existence of a stationary equilibrium and a procedure to compute solutions to a class of dynamic general equilibrium models with two important features. First, occupational choice is determined endogenously as a function of heterogeneous agent type, which is defined by an agent's managerial ability and capital bequest. Heterogeneous ability is exogenous and independent across generations. In contrast, bequests link generations and the distribution of bequests evolves endogenously. Second, there is a financial market for capital loans with a deadweight intermediation cost and a repayment incentive constraint. The incentive constraint induces a non-convexity. The paper proves that the competitive equilibrium can be characterized by the bequest distribution and factor prices, and uses the monotone mixing condition to ensure that the stationary bequest distribution that arises from the agent's optimal behavior across generations exists and is unique. The paper next constructs a direct, non-parametric approach to compute the stationary solution. The method reduces the domain of the policy function, thus reducing the computational complexity of the problem.

Keywords: Existence; Computation; Dynamic general equilibrium; Non-convexity (search for similar items in EconPapers)
JEL-codes: C62 C63 E60 G38 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2006-05
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac and nep-mic
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http://www.fas.nus.edu.sg/ecs/pub/wp-scape/0611.pdf (application/pdf)

Related works:
Journal Article: Computing general equilibrium models with occupational choice and financial frictions (2008) Downloads
Working Paper: Computing General Equilibrium Models with Occupational Choice and Financial Frictions (2006) Downloads
Working Paper: Computing General Equilibrium Models with Occupational Choice and Financial Frictions (2006) Downloads
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