Showing 1 - 10 of 129
In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems—the theory of recursive contracts. Recursive...
Persistent link: https://www.econbiz.de/10014024287
To what extent is public debt private liquidity? Much policy advice given in the aftermath of the financial crisis rests on the assumption that increasing public debt relaxes borrowing constraints of private households. This is the case for ad-hoc debt limits, which are exogenous to public...
Persistent link: https://www.econbiz.de/10011209205
I provide a complete characterization of equilibrium with risk of default in sequential economies under uncertainty. Default induces permanent exclusion from financial markets and not-too-tight solvency constraints prevent debt repudiation at equilibrium. The method of analysis relies on a...
Persistent link: https://www.econbiz.de/10010723492
We study competitive equilibrium in sequential economies under limited commitment. Default induces permanent exclusion from financial markets and endogenously determined solvency constraints prevent debt repudiation. Our analysis shows that such an enforcement mechanism is essentially fragile,...
Persistent link: https://www.econbiz.de/10010604556
We study optimal incentives in a principal-agent problem in which the agent's outside option is determined endogenously in a competitive labor market. In equilibrium, strong performance increases the agent's market value. When this value becomes sufficiently high, the threat of the agent's...
Persistent link: https://www.econbiz.de/10011108859
In this paper I provide a stopping-time-based solution to a long-term contracting problem between a risk-neutral principal and a risk-averse agent. The agent faces a stochastic income stream and cannot commit to the long-term contracting relationship. To compute the optimal contract, I also...
Persistent link: https://www.econbiz.de/10011111833
We examine a model of dynamic screening and price discrimination in which the seller has limited commitment power. Two cohorts of anonymous, patient, and risk-neutral buyers arrive over two periods. Buyers in the first cohort arrive in period one, are privately informed about the distribution of...
Persistent link: https://www.econbiz.de/10010897046
We study optimal incentive provision for “knowledge workers”, a crucial resource for many organizations. We augment a standard moral-hazard framework to reflect two key patterns: First, retention is a challenge because workers are free to leave; thereby harming their employer. Second, the...
Persistent link: https://www.econbiz.de/10011048587
I consider a risk-sharing game with limited commitment, and study how the discount factor above which perfect risk sharing is self-enforcing in the long run depends on agents׳ risk aversion and the riskiness of their endowment. When agents face no aggregate risk, a mean-preserving spread may...
Persistent link: https://www.econbiz.de/10011051972
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...
Persistent link: https://www.econbiz.de/10011042987