This paper considers an economy which is populated by a continuum of identical families consisting of two members. The two members have different productivities and the family faces a fixed utility cost if both members supply labor simultaneously. Although both family members have the same preferences, they display very different elasticities of labor supply. A real business cycle model is calibrated and it is seen that this cross-sectional heterogeneity results in interesting forms of aggregation bias.
All Science Journal Classification (ASJC) codes
- Economics and Econometrics