In this paper, we study the impact on the aggregate economy of changes in individual risk and insurance. To this end, we use the analytical framework developed in Heathcote, Storesletten and Violante (2008). Our main finding is that insurable risk increases TFP by improving the allocation of...

This paper extends the recent recursive contract literature on optimal unemployment insurance and optimal welfare-to-work programs in order to study the constrained-efficient dynamic contract between government and unemployed worker when a costly "training technology" is available. We first...

Not all meetings, however, necessarily lead to transactions. A match occurs if and only if the sale results in a positive surplus; otherwise, the potential buyer and seller continue to search. The continuation flow values that the prospective buyer and seller bring to the table as well as the...

China has been growing at a high rate and has at the same time accumulated a staggering foreign surplus. We construct a theory that explains these seemingly puzzling observations, while being consistent with salient features of the Chinese growth experience since 1992: high output growth,...