This paper considers a dynamic Mirrleesian economy and decomposes agents' lifetime incentive compatibility (IC) constraints into a sequence of temporal ones. We encode the
frequency and severeness of these temporal IC constraints by their associated Lagrange multipliers,showing that the accumulation of the Lagrange multipliers on the consumption part is a nonnegative martingale.
Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we construct a new dataset of estimates for the output shares of natural resources for a large panel of countries.
Why has the U.S. black/white earnings gap remained around 40 percent for nearly 40 years? This paper's answer consists of a model of skill accumulation and neighborhood formation featuring a trap: Initial racial inequality and racial preferences induce racial segregation and asymmetric skill accumulation choices that perpetuate racial inequality.
Mortgages are long-term loans with nominal payments. Consequently, under incomplete
asset markets, monetary policy can affect housing investment and the economy through the
cost of new mortgage borrowing and real payments on outstanding debt.
The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates forecast booms in GDP, consumption, investment, and employment.
We study the endogenous choice to accept fiat objects as media of exchange and their implications for nominal exchange rate determination. We consider a two-country environment with two currencies which can be used to settle any transactions.
The supply and demand of credit are not always well aligned and matched, as is reflected
in the countercyclical excess reserve-to-deposit ratio and interest spread between the lending
rate and the deposit rate.
What determines the earnings of a worker relative to his peers in the same
occupation? What makes a worker fail in one occupation but succeed in another?
More broadly, what are the factors that determine the productivity of a worker-occupation
match? In this paper, we propose an empirical measure of skill mismatch
for a worker-occupation match, which sheds light on these questions.
Why did the marriage probability of single females in France after World War 1 rise 50%
above its pre-war average, despite a 33% drop in the male/female singles ratio? We conjecture
that war-time disruption of the marriage market generated an abnormal abundance of
men with relatively high marriage propensities.
The rise of China is no doubt one of the most important events in world economic history since
the Industrial Revolution. Mainstream economics, especially the institutional theory of
development based on a dichotomy of extractive vs. inclusive political institutions, is highly
inadequate in explaining China’s rise.
In U.S. data 1981–2012, unsecured firm credit moves procyclically and tends to lead GDP, while secured firm credit is acyclical; similarly, shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit.
We develop a dynamic general equilibrium monetary model where a shortage of collateral and incomplete markets motivate the formation of credit relationships and the rehypothecation of assets. Rehypothecation improves resource allocation because it permits liquidity to flow where it is most needed.
The pursuit to uncover the driving forces behind cross-country income gaps has divided economists into two major camps: One emphasizes institutions, while the other stresses non-institutional forces such as geography.
This study proposes and quantitatively assesses a terms-of-trade penalty for defaulting: defaulters must exchange more of their own goods for imports, which causes an adjustment to the equilibrium exchange rate.
Consider the following facts. In 1950, the richest countries attained an average of 8 years
of schooling whereas the poorest countries 1.3 years, a large 6-fold difference. By 2005, the
difference in schooling declined to 2-fold because schooling increased faster in poor than in
In this paper we compare the welfare effects of unemployment insurance (UI) with an universal
basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies
provide a safety net in the face of idiosyncratic shocks.