Labor Supply Flexibility and Portfolio Choice

Preprint OPEN
Zvi Bodie ; William Samuelson (1989)

This paper develops a model showing that people who have flexibility in choosing how much to work will prefer to invest substantially more of their money in risky assets than if they had no such flexibility. Viewed in this way, labor supply flexibility offers insurance against adverse investment outcomes. The model provides support for the conventional wisdom that the young can tolerate more risk in their investment portfolios than the old. The model has other implications for the study of household financial behavior over the life cycle. It implies that households will take account of the value of labor supply flexibility in deciding how much to invest in their own human capital and when to retire. At the macro level it implies that people will have a labor supply response to shocks in the financial markets.
  • References (3)

    KillingwOrth, Mark R., Labor Sulv, Cambridge University Press, Cambridge, U.K., 1983.

    Mayers, David, "Non-Marketable Assets and Capital Market Equilibrium Under Uncertainty," in M. Jensen (ed.), Studies in the Theory of Capital Markets, New York: Praeger, 1972.

    Williams, Joseph, "Risk, Human Capital, and the Investor's Portfolio," Journal of Business, Vol. 51, No. 1, 1978, 65-

  • Metrics
    No metrics available
Share - Bookmark