We analyze optimal redistribution in the presence of labor market signaling where innate productive ability is not only unobserved by the government, but also by prospective employers. Signaling in both one and two dimensions is considered, where in the latter case firms have an informational...

Courts typically base compensation for loss of income in personal injury cases on either mean or median work income. Yet, quantatively, mean and median incomes are typically very different. For example, in the US median income is 65 percent of mean income. In this paper we use economic theory to...

In this paper we provide a novel justification for the use of minimum wage rules to supplement the optimal tax-and-transfer system. We demonstrate that if labor supply decisions are concentrated along the intensive margin and employment is efficiently rationed, a minimum wage rule can be...

This paper provides a novel justification for a declining time profile of unemployment benefits that does not rely on moral hazard or consumption-smoothing considerations. We consider a simple search environment with homogeneous workers and low- and high-productivity firms. By introducing a...

In this paper we examine the properties of the optimal linearestate tax in the presence of a complete set of tax instrumentsavailable to the social planner. We allow for both types of bequestmotives, namely altruistic and accidental. We examine the casefor estate taxation which seems to be the...

Minimum wage legislation is a standard policy tool in most countries. However, the overall merits of minimum wage are controversial due to its potential adverse effects on unemployment. In this paper we construct a simple model in which minimum wage plays an important re-distributive role,...

We illustrate a novel informational feature of education, which the government may utilize. Discretionary decisions of individuals to acquire education may serve as an additional signal (to earned labor income) on the underlying unobserved innate earning ability, thereby mitigating the...

We develop a dynamic two-party political economy framework, in which parties seek to maximize vote share and face the trade-off between catering to their respective core constituencies on the one hand and ?middle of the road? voters with no partisan affiliation on the other hand. In contrast to...

We develop a model that allows for public goods and status signaling through charitable contributions. This model provides a unified framework in which contributions are driven both by altruism and status signaling. We use this setup to re-examine the conventional practice of rendering a...

In this paper, we discuss a novel aspect of affirmative action policy. We examine its redistributive role, asking whether in an egalitarian society, supplementing the tax-transfer system with an affirmative action policy would enhance social welfare.