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On Risk Induced by Technical Change

Author

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  • Burak Ünveren

    (Yıldız Teknik Üniversitesi, İİBF, Davutpaşa Campus, İstanbul, Turkey)

Abstract

Purpose: The purpose of this paper is to analyze the efficiency loss due to incomplete financial markets when risk is induced by technological uncertainty. Design/methodology/approach: A worker-capitalist general equilibrium model is developed. It is assumed that future technical change is a stochastic event, causing uncertainty in future relative prices. Then the model is calibrated to the US data. Findings: Our first finding is theoretical: The competitive equilibrium is Pareto-inefficient. Then we numerically calculate the taxes that make all individuals better-off at the calibrated parameter values. The results clearly show how the burden of taxation should be shared among workers and capitalists when the government uses redistribution of income as a tool of mitigating the loss of efficiency due to technological shocks. Research limitations/implications: The model is obviously a stripped-down version of reality, and hence, the results should be taken with a grain of salt as the numerical computations would be definitely sensitive to certain rich details of real life that are neglected in this study. Originality/value: The results show that the total amount of employment and production are not affected by optimal taxation, which is a surprising result. Indeed, the inefficiency is primarily caused by the distribution of labor supply among individuals. The optimal taxes are also numerically computed.

Suggested Citation

  • Burak Ünveren, 2017. "On Risk Induced by Technical Change," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 10(1), pages 42-48, March.
    • Handle: RePEc:tei:journl:v:10:y:2017:i:1:p:42-48
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    References listed on IDEAS

    as
    1. Atsushi Kajii & Antonio Villanacci & Alessandro Citanna, 1998. "Constrained suboptimality in incomplete markets: a general approach and two applications," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 495-521.
    2. Felix Reichling & Charles Whalen, 2012. "Review of Estimates of the Frisch Elasticity of Labor Supply: Working Paper 2012-13," Working Papers 43676, Congressional Budget Office.
    3. Antràs Pol, 2004. "Is the U.S. Aggregate Production Function Cobb-Douglas? New Estimates of the Elasticity of Substitution," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-36, April.
    4. Frey, Carl Benedikt & Osborne, Michael A., 2017. "The future of employment: How susceptible are jobs to computerisation?," Technological Forecasting and Social Change, Elsevier, vol. 114(C), pages 254-280.
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    More about this item

    Keywords

    Incomplete markets; Constrained efficiency; redistribution;
    All these keywords.

    JEL classification:

    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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