Contract theory typically holds that verification costs are obstacles to complete contracting; yet, real world contracts often contain provisions that seem costly to verify. We show how a costly signal can play an important role in contracts. Verification (or litigation) costs operate as a...

High tax rates have led to shadow economy worth over £150 billion in UKSummary:Measurement of the shadow economy is notoriously difficult as it requires estimation of economic activity that is deliberately hidden from official transactions. Surveys typically understate the size of the shadow...

A puzzle of China’s shadow banking system is its stark growth since the 2008 Subprime Crisis, which is in sharp contrast to most of countries. We present a model to explain why the shadow banking activities have been allowed to expand with the full awareness of regulators in China. In the...

Short-term debt is commonly used to fund illiquid assets. A conventional view asserts that such arrangements are run-prone in part because redemptions must be processed on a first-come, first-served basis. This sequential service protocol, however, appears absent in the wholesale banking...

We examine the association between unpaid caregiving by older Americans and time allocated to labor supply, home production, leisure, and personal care. After controlling for time-invariant heterogeneity using panel time diaries, we find that older caregivers reported reduced time allocated to...

In the last decade, there has been substantial growth in the number of individuals deriving income through digital platforms (e.g., Uber, Airbnb, Instagram), including from live streaming platforms. In this context, we examine whether reduced opportunity costs, such as having more free time and...

We provide evidence that firms with weak investment opportunities (those whose current earnings justify a greater valuation than firms with strong investment opportunities) signal their permanent earnings level through their dividends. In the cross-section, we show that both dividend levels and...

We assess the heterogeneous impact of economic downturns on individuals' decisions to bring high-technology ideas to the market in the form of new ventures. We thereby examine how worsening labor market conditions influence individuals' opportunity costs of starting new ventures, the resulting...

Using the most comprehensive dataset of leveraged funds known to the literature, we measure the market-wide shadow cost of leverage constraints and examine its pricing implications. The shadow cost averages 0.56% per annum from 2006 to 2016, spikes upon quarter-ends when banks face tighter...

Federal agencies are deeply involved in both the foreground and shadows of legislative drafting. In the foreground, agencies draft the substantive legislation the Administration desires to submit to Congress. In the shadows, agencies provide confidential “technical drafting assistance” on...

This paper considers the optimal hedge ratio problem under estimation risk. Due to incomplete information, the decision-maker evaluates the opportunity cost of hedging using exchange-traded funds or notes (ETF/Ns). Using a back-testing procedure over the last five years and 13 different hedging...

We investigate whether corporate insiders attempt to circumvent insider trading restrictions by using their private information to facilitate trading in economically-linked firms, a phenomenon we call “shadow trading.” Using measures of informed trading to proxy for shadow trading, we find...

Large amounts of e-waste are processed "informally" in lower income countries. Such processing releases dangerous pollutants, which increase mortality and reduce cognitive functioning. This paper estimates the social cost of informal e-waste processing in Southern China. This parameter may be...

Sunk opportunity costs can causally affect subsequent behavior. Turning down initial temptations might make it easier for people to stay committed in the longer term to a personal goal. We discuss several competing explanations for this enhanced commitment effect – including that resisting...

We use a mix of new and existing data to develop the Aggregate Hours Gap (AHG), a novel measure of labor market underutilization. Our measure differentiates individuals by detailed categories of labor market participation and uses data on their desired work hours as a measure of their potential...

We address the long-standing challenge of adding optimal exploration to the classic Hotelling model of a non-renewable resource. We completely solve such a model, using impulse control. The model, extending Arrow and Chang (1982), has two state variables: "proven" reserves and a finite...

Banks' shadow, or money creation by banks beyond traditional loans, plays an important role in China's money-creation process, posing a number of challenges to monetary policy operations and financial risk management. This paper analyzes the money-creation mechanisms of China's shadow banking...

We propose a framework of network formation where players can form two types of links: public links are observed by everyone and shadow links are only observed by neighbors. We introduce a novel solution concept called rationalizable peer-confirming pairwise stability, which generalizes Jackson...

In 2017, the Swiss electorate voted to transition the Swiss energy system towards energy efficiency and renewable energy resources. This transition entails many changes to the existing energy technologies and the supporting markets. In particular, this paper focuses on the Swiss electricity...

We study the design of a fair family policy in an economy where parenthood is regarded either as desirable or as undesirable, and where there is imperfect fertility control, leading to involuntary childlessness/parenthood. Using an equivalent consumption approach in the consumption-fertility...

In this paper, we develop a framework for measuring, allocating and managing systemic risk. SystRisk, our measure of total systemic risk, captures the a priori cost to society for providing tail-risk insurance to the financial system. Our allocation principle distributes the total systemic risk...

One way for jurisdictions with limited analytic resources to increase their capability for doing cost-benefit analysis (CBA) is to use existing shadow prices, or "plug-ins", for important social impacts. This article contributes to the further development of one important shadow price: the value...