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Traditional approach. max U(C, h) s.t. C=f(wh, I) h 0,T] where: C = net income h = hours of work w = wage rate I = other income T = total available time f( ) = tax rule. Our approach. max U(C, h, z) s.t. C=f(wh, I) (h, w, z)  B where: z = other job characteristics

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traditional approach
Traditional approach

max U(C, h)

s.t.

C=f(wh, I)

h0,T]

where:

C = net income

h = hours of work

w = wage rate

I = other income

T = total available time

f( ) = tax rule

our approach
Our approach

max U(C, h, z)

s.t.

C=f(wh, I)

(h, w, z)  B

where:

z = other job characteristics

B = opportunity set

the approach we use is different from the traditional approach
Traditional model:

max U(C, h)

s.t.

C = f(wh, I)

h0,T]

Our

model:

max U(C, h, z)

s.t.

C = f(wh,I)

(h, w, z) B

The approach we use is different from the traditional approach
the opportunity set contains different number of jobs with different characteristics
The opportunity set contains different number of jobs with different characteristics
  • This is taken into account by specifying a frequency or density function:
  • m(h,w) = density of jobs with hours and wage (h,w).