Insurance-markets Equilibrium with Sequential Non-convex Market-Sector and Divisible Informal-Sector Labor Supply

<p>This paper describes the lottery- and insurance-market equilibrium in aneconomy with non-convex market-sector employment and informal sector work. Incontrast to Vasilev 2016a, the discrete-continuous labor supply decision in this paperis a sequential one, and instead of home production, we focus on informal activity.The presence of non-convexity requires that an insurance market for market-sectoremployment be put in operation to achieve market completeness. In addition, giventhat the labor choice for market work and informal-sector hours is made in succes-sion, the insurance market for market employment needs to close before the laborsupply choice in the grey economy is made. This timing is reminiscent of the resultsobtained in Vasilev 2016b) and also a direct consequence of the sequential nature ofthe discrete-continuous sectoral labor supply decision.</p>