A recurring problem in attempt~to produce equilibrium models of aggreate fluctuations has been the inability of these models to account for bserved relative magnitudes of fluctuations in_total labor supply and real ages.[For example,see Altonji and Ashenfeiter(1980),Kydland and rescott(1982).]In particular,the estimates of the elasticity of labor supply ound using micro data are much smaller than that required to reconcile
aggregate fluctuations with equilibrium theory.This paper demonstrates that
non-convexities may be zA substantial interest for this problem.
Consider the alternative specification of preferences for E: