The financial crisis has been attributed partly to perverse incentives for traders at banks and has led policy makers to propose regulation of banks' remuneration packages. We explain why poor incentives for traders cannot be fully resolved by only regulating the bank's top executives, and why...

We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains...

type="main" <p>We study optimal risk adjustment in imperfectly competitive health insurance markets when high-risk consumers are less likely to switch insurer than low-risk consumers. Insurers then have an incentive to select even if risk adjustment perfectly corrects for cost differences. To...</p>

In CPB Discussion Paper 209 we study incentives of financial intermediaries to reserve liquidity given that they can rely on the interbank market for their liquidity needs. Intermediaries can partially pledge their assets to each other, but not to the rest of the economy. Therefore liquidity...

We study how the possibility of renegotiation affects optimal bail-out policies for countries under asymmetric information on a country's cost of reforms. To that end, we solve the Bellman equation describing the optimal bail-out mechanism in a multiple-period principal-agent model with adverse...

Employment protection is often related to costs incurred by firms when they fire a worker. The stability of the employment relationship, enhanced by employment protection, is also favourable to the productivity of the job. We analyse employment protection focusing on this trade-off between...

This Paper explores the optimal role of the tax system in alleviating labour-market imperfections and raising revenue. For this purpose, the standard search model of the labour market is extended by introducing scarce entrepreneurial talent and arbitrage between the supply and demand. We study...

This paper explores the use of auctions for privatizing public assets. In our model, a single ‘insider’ bidder (e.g. incumbent management of a government-owned firm) possesses information about the asset’s risky value. In addition, bidders are privately informed about their costs of...

For many goods (such as experience goods or addictive goods), consumers' preferences may change over time. In this paper, we examine a monopolist's optimal pricing schedule when current consumption can affect a consumer's valuation in the future and valuations are unobservable. We assume that...