Universal basic income in a financial equilibrium

2026-01-12

AI Summary

This study investigates whether a universal basic income (UBI) can sustain economic equilibrium within a dynamic general equilibrium model that integrates labor supply decisions and financial market interactions. The model incorporates agents’ joint choices over labor, consumption, and financial investment, and uniquely embeds a UBI redistribution mechanism alongside Nash-perceived labor effects. By formulating a decoupled system of quadratic backward stochastic differential equations (BSDEs), the paper rigorously establishes the existence of equilibrium. The analysis reveals that UBI exerts a monotonically positive impact on labor force participation and social welfare, while its effect on the stock market is non-monotonic, thereby uncovering the nuanced and complex implications of UBI policies in financial dimensions.

Technology Category

Game Theory and Economic Paradigms: EquilibriumMultiagent Systems: Mechanism DesignReasoning under Uncertainty: Decision/Utility Theory

Application Category

Economics, Online Markets and Human Computation: Uses of LLMs and GenAI for marketplace design, bidding, and strategic interactionsSocial Networks and Social Media: Generative AI / large language models and their impact on social systemsResponsible Web: Machine-in-the-loop, human agency and autonomy

Abstract

Universal basic income (UBI) is a tax scheme that uniformly redistributes aggregate income amongst the entire population of an economy. We prove the existence of an equilibrium in a model that implements universal basic income. The economic agents choose the proportion of their time to work and earn wages that can be used towards consumption and investment in a financial market with a traded stock and annuity. A proportion of the earned wages is uniformly distributed amongst all agents, leading to interconnectedness of the agents'decision problems, which are already dependent on one another through the financial market. The decision problems are further entangled by Nash perceptions of labor; the agents respond to the labor choices of others and act upon their perceived income in their decision problems. The equilibrium is constructed and proven to exist using a backward stochastic differential equation (BSDE) approach for a BSDE system with a quadratic structure that decouples. We analyze the effects of a universal basic income policy on labor market participation, the stock market, and welfare. While universal basic income policies affect labor market participation and welfare monotonically, its effects on the stock market are nontrivial and nonmonotone.

Problem

• Universal Basic Income
• Financial Equilibrium
• Labor Market Participation
• Interconnected Decision Problems
• Nash Perceptions

Innovation

• backward stochastic differential equation
• quadratic BSDE
• financial equilibrium
• universal basic income
• Nash labor perception