Asset Pricing with Dynamic Labor Contracts ∗
نویسنده
چکیده
I study asset prices in a two-agent production economy in which the worker has private information about her labor productivity. The shareholder offers an incentive compatible long-term labor contract, which partially insures the worker against labor income risk. I compare the model’s performance to settings with a competitive labor market, and with static labor contracts. My model successfully matches both asset returns data and businesscycle features, including a countercyclical and high equity premium, a low risk-free rate, procyclical labor input, and countercyclical labor share. The results highlight that the dynamic contracting feature in labor relations is quantitatively important in determining asset prices. JEL Classification: D82, D86, E44, G12
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