Insurance-markets Equilibrium with Sequential Non-convex Private- and Public-Sector Labor Supply

This paper describes the lottery- and insurance-market equilibrium in an economy with non-convex private- and public-sector employment. In contrast to Vasilev (2015a, 2015b), the public-sector labor supply decision is a sequential one. This requires two separate insurance market to operate, one for private-sector work, and one for public- sector employment. In addition, given that the labor choice for private- and public- sector hours is made in succession, the insurance market for public employment needs to open once the other insurance market has closed. This segmentation and sequentiality of insurance markets operation is a new result in the literature and a direct consequence of the double non-convexity, and the sequential nature of the sectoral labor supply decision.