We study a continuous-time version of the optimal risk-sharing problem with one-sided commitment. In the optimal contract, the agentʼs consumption is a time-invariant, strictly increasing function of a single state variable: the maximal level of the agentʼs income realized to date. We...

An important incentive problem for the design of unemployment insurance is the fraudulent collection of unemployment benefits by workers who are gainfully employed. We show how to efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the...

In this paper, we develop continuous-time methods for solving dynamic principal-agent problems in which the agent's privately observed productivity shocks are persistent over time. We characterize the optimal contract as the solution to a system of ordinary differential equations and show that,...