Abstract

This paper describes the lottery- and insurance-market equilibrium in
an economy with non-convex private- and public-sector employment. In contrast to
Vasilev 2017, 2015, 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.