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# Traditional approach - PowerPoint PPT Presentation

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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Presentation Transcript

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

B = opportunity set

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 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).