We model the impact of rising temperatures on labor productivity, la- bor market dynamics, and income inequality. Using a heterogeneous agent continuous-time (HACT) model with directed search, we analyze how temperature- induced productivity fluctuations influence the labor market, income and wealth inequality, and wealth accumulation. The model features workers differentiated by wealth, productivity, and location, where temperature affects transitions be- tween high and low productivity states. Firms post fixed-wage contracts, and workers direct their job search across segmented labor markets. We calibrate the model using Vietnamese Labor Force data (2009-2018) matched with me- teorological records, capturing regional temperature variations. With increased temperatures, in low wage markets the ratio of vacancies to unemployed workers searching in those market falls, as labor productivity declines and falling wealth leads workers to direct their search to these markets when vacancies are also falling. The wage distribution shifts to the left, and average incomes and wealth fall. Climate-induced productivity shocks amplify income and wealth dispar- ities as wealthier individuals are able to self-insure better against the income risk. The results underscore the role of climate change in shaping labor market inequality and provide insights into policy interventions that may mitigate its adverse effects.

Abstract: This paper studies the evolution of health and economic inequality during pandemics. It focuses on optimal preventive and treatment actions by agents who differ in their productivity, wealth and health status. Unlike the canonical Aiyagari-Bewley-Huggett framework where the income risk is exogenous, in our framework it is affected by individual choices and the endogenously determined economic and epidemiological variables. We have a heterogeneous agent continuous time (HACT) model where even if there are no exogenous productivity shocks the infection process introduces individual level heterogeneity and macroeconomic level fluctuations due to the interaction of the infection process, the control decisions, and effects on economic variables such as labour productivity and capital. Consistent with the evidence from the Covid-19, income, wealth, and health (proxied by infection rates) inequality increase during pandemics. The increase in income inequality is temporary but that of wealth is persistent. The increase in inequalities is driven by the increasing elasticities of health expenditures with wealth. We characterise the policy functions, the stationary equilibrium distributions and simulate the transitional dynamics to stationary equilibrium. We also evaluate the effect of government’s income support scheme.

Abstract: The characterisation of the equilibrium manifold using a differentiable approach is a major contribution in economic theory and mathematical economics. While there is a detailed characterisation of the equilibrium manifold, there are no worked examples to illustrate the various properties that have been derived. This paper presents several examples, one with a globally unique equilibrium, and three where there can be multiplicity of equilibria. These examples help visualize a concept which is well understood but has so far been a chimera.

Abstract: Economic epidemiology models have become a major application of dynamic general equilibrium theory to understand the interaction of infectious diseases and economic outcomes following the Covid pandemic. The papers have used differing assumptions of the epidemiology dynamics off-the-shelf from the epidemiology literature and an unanswered question is what are the implications for optimal policies and the equilibrium outcomes of these assumptions. In a unified framework, we use both the Hamiltonian approach and a continuous time dynamic programming (HJB) approach to explore this issue. We use neural network to numerically approximate the policy and value functions under SIR (where an infection confers lasting immunity to subsequent infections) and SIRS (where it does not) dynamics. The value functions look qualitatively similar as does the policy function for consumption. However, the policy function for the health expenditures differ. We also present the phase portraits and the dynamics of the variables of interest. These differ greatly.

Abstract: The natural disaster, such as the COVID-19 pandemic, may reshape the relationship between charities and the government. This paper investigates the organizational behaviour of charitable fundraiser, focusing on the binary decision-making process of whether to initiate fundraising activities in response to pandemic shocks and government interventions through collaborative advocacy. We begin by developing a partial equilibrium model to generate several theoretical predictions. Then, we provide empirical evidence using the data of Charity in China. We apply a Difference-in-Difference framework to capture the treatment effect from both pandemic and government shocks. Consistent with our theoretical predictions, we identify a significant negative impact from the local outbreaks of pandemics and a positive effect from government advocacies on the probability of holding fundraising activities. The duration of these effects varies: government advocacy has a temporary impact, while the effects of pandemic outbreaks are more persistent.