02028cam a22002417 4500001000600000003000500006005001700011008004100028100001600069245014900085260006600234490004100300500001800341520105500359530006101414538007201475538003601547700002201583700002601605710004201631830007601673856003701749w3954NBER20140317064302.0140317s1992 mau||||fs|||| 000 0 eng d1 aBodie, Zvi.10aLabor Supply Flexibility and Portfolio Choice in a Life-Cycle Modelh[electronic resource] /cZvi Bodie, Robert C. Merton, William F. Samuelson. aCambridge, Mass.bNational Bureau of Economic Researchc1992.1 aNBER working paper seriesvno. w3954 aJanuary 1992.3 aThis paper examines the effect of the labor-leisure choice on portfolio and consumption decisions over an individual's life cycle. The model incorporates the fact that individuals may have considerable flexibility in varying their work effort (including their choice of when to retire). Given this flexibility, the individual simultaneously determines optimal levels of current consumption, labor effort, and an optimal financial investment strategy at each point in his life cycle. We show that labor and investment choices are intimately related. The ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante. The model explains why the young (enjoying greater labor flexibility over their working lives) may take greater investment risks than the old. It also offers an explanation as to why consumption spending is relatively "smooth" despite volatility in asset prices. Finally, the paper provides a compact method for valuing the risky cash flows associated with future wage income. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aMerton, Robert C.1 aSamuelson, William F.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w3954.4 uhttp://www.nber.org/papers/w3954