In this article, I study the effect of worker heterogeneities on wages and unemployment within the context of a directed search model. A worker's productivity in a given firm depends both on their type and on a worker-firm specific component. Firms advertise unconditional wage offers, and hire...

Loss aversion is one of the most robust findings to have emerged from behavioral economics. Surprisingly little attention, however, has been devoted to nominal loss aversion, the interaction of loss aversion and money illusion. People tend to think of transactions in terms of their nominal...

This Paper develops a model with multiple steady states (low tax and low unemployment versus high tax and high unemployment) in which equilibrium selection is not conditioned on a sunspot variable. Instead, large temporary shocks initiate unavoidable transitions from one steady state to another....

I study the constrained efficient allocations of a simple model of risk sharing and capital flows across countries assuming that each country cannot commit to fully repay its contract obligations. In the model, the degree of risk sharing and the amount of investment are interdependent. It is...

This Paper investigates the relationship between risk and productive activity and the degree of financial intermediation in a model with moral hazard. Entreprenuers can simultaneously get credit from two types of competing institutions: ‘financial intermediaries’ and ‘local lenders’. The...

There is a large body of literature documenting both a preference for immediacy and a tendency to procrastinate. O'Donoghue and Rabin (1999a,b, 2001) and Choi et al. (2005) model these behaviours as two faces of the same phenomenon. In this paper, we use a combination of lab, field, and survey...

This paper analyzes the effects of network positions and individual risk attitudes on individuals' strategic decisions in an experiment where actions are strategic substitutes. The game theoretic basis for our experiment is the model of Bramoullé and Kranton (2007). In particular, we are...

Laboratory experiments are a widely used methodology for advancing causal knowledge in the physical and life sciences. With the exception of psychology, the adoption of laboratory experiments has been much slower in the social sciences, although during the last two decades, the use of lab...

This paper presents a model that explains why in the transition economies of Central and Eastern Europe an important output fall has been associated with price liberalization. Its key ingredients are search frictions and Williamsonian relation-specific investment implying that new investments...

In the course of ordinary business, commercial banks frequently encounter entrepreneurs seeking loans for the purpose of financing new or continuing projects. These entrepreneurs are frequently unrealistic, their perception having been biased by wishful thinking. Bankers are left with a...