Can Occbin be used for indivisible labor choice?

General DSGE Modeling
1

Hello all,

I would like to add indivisible labor choice as in Chang and Kim (2007) into the model of Krusell and Smith (1998). In Chang and Kim (2007), labor hour is a fixed value (h_bar) or zero, so value function (V) becomes the following equation.

V = Max \{V_{employed}(h=\bar h), V_{unemployed}(h=0)\}.

Since I am using Winberry’s method (local approximation), I am thinking that I cannot directly add indivisible labor choice because the equation above makes the model non-differentiable.

As far as I know, Occbin is usually used to consider zero lower bound or downward nominal wage rigidity. Based on my understanding, Occbin might be used to introduce indivisible labor choice as well. Could you please advise me if it is possible?

2

I guess in principle that type of setup could be used with Occbin, but I am pretty sure you cannot combine Occbin with Winberry’s toolbox.

3

I really appreciate your comment.
Could you please tell me more details about why Winberry’s toolbox cannot be combined with Occbin?

4

Because Occbin does not rely on the normal perturbation solution from Dynare, but constructs a piecewise solution from the perturbation solution of the different states. I am not sure whether the Winberry toolbox can handle this.

5

Thank you so much for your comment!