recursive non expected utility connecting ambiguity attitudes to risk preferences and the level of ambiguity abstract i study how risk preferences and the level of ambiguity influence ambiguity attitudes in uzi segal s recursive second order non expected utility model it is shown that the negative certainty independence axiom for risk preferences is equivalent to a global form of ambiguity aversion that entails ambiguity averse behavior irrespective of the state space and the decision maker s second order belief thus the second order version of the cautious expected utility model is the only subclass of segal s theory that robustly predicts ambiguity aversion moreover a mean preserving spread operation over second order beliefs which corresponds to a particular way of increasing the level of ambiguity is equivalent to increasing the relative strength of ambiguity aversion for each possible specification of risk preferences within the cautious expected utility model an application of the latter result establishes a negative relation between participation rates in an asset market and the level of ambiguity concerning the distribution of returns

the u s evidence on optimal taxation over time abstract this paper considers a tax rule in which a uniform tax rate over time becomes optimal its implications are that 1 changes in the tax rate should arise only when there are changes in permanent government expenditures and 2 no variable other than permanent government expenditures should be of any value in predicting the tax rate these implications are tested using u s data for 1937 82 empirical results of the tests reveal that in addition to responding to permanent government expenditures the tax rate also responds to temporary defense purchases the general price level and a time trend

minimum wage effects on employment and school enrollment we argue in this article that the focus on employment effects in recent studies of minimum wages ignores an important interaction between schooling employment and the minimum wage to study these linkages we estimate a conditional logit model of employment and enrollment outcomes for teenagers using state year observations for the period 1977 to 1989 the results show a negative influence of minimum wages on school enrollment and a positive effect on the proportion of teens neither employed nor in school we further suggest that our results are consistent with substitution by employers of higher for lower skilled teenagers with the displaced teens ending up both out of work and out of school

an experimental study of incentive contracts for short and long term employees abstract motivated by real world observations of different contract offers we conduct a lab experiment to examine a principal s contract choice and agent effort in both long and short term employment relationships implemented as one shot and repeated games we find that a piece rate contract has the strongest incentive effect on short term agents effort and is the principals dominant choice nevertheless the bonus contract works almost as well as the piece rate contract for long term relationships but not so well for short term relationships in addition the bonus contract s effect on effort is mainly driven by the bonus component suggesting that a fixed wage alone is not an effective mechanism to improve workers performance

robust policymaking in the face of sudden stops abstract this paper considers tax policies to deal with sudden stops declines in aggregate activity that are magnified by a binding collateral constraint that occasionally occur in emerging market economies households and or the government are assumed to face model uncertainty and desire robustness against alternative models welfare gains from optimal taxation are small if the government trusts its model of household expectations whether those expectations are altered by model uncertainty or not in contrast welfare losses are large if the government is uncertain about the household s probability model

foundations of dominant strategy mechanisms wilson 1987 criticizes applied game theory s reliance on common knowledge as sumptions in reaction to wilson s critique the recent literature of mechanism design has adopted the goal of finding detail free mechanisms in order to eliminate this re liance in practice this has meant restricting attention to simple mechanisms such as dominant strategy mechanisms however there has been little theoretical foundation for this approach in particular it is not clear the search for an optimal mechanism that does not rely on common knowledge assumption would lead to simpler mechanisms rather than more complicated ones this paper tries to fill the void in the context of an expected revenue maximizing auctioneer we investigate some foundations for using simple dominant strategy auctions

deficits government expenditures and tax smoothing in the united states 1929 1988 abstract barro s tax smoothing hypothesis tsh implies that the government runs a budget deficit whenever it anticipates the growth rate of national income to increase or the growth rate of its expenditure to decline we test this implication of the hypothesis by examining the implied cross equation restrictions on a vector autoregression var model using u s data for the period ranging from 1929 to 1988 our formal tests reject the hypothesis for the full sample period but cannot reject it for the post 1947 period further investigations show that the statistical rejection should be attributed to sharp differences in the statistical properties of the pre 1947 and the post 1947 data rather than the failure of the hypothesis itself

using regional variation in wages to measure the effects of the federal minimum wage the imposition of a national minimum wage standard provides a natural experiment in which the treatment effect varies across states depending on the fraction of workers initially earning less than the new minimum the author exploits this fact to evaluate the effect of the april 1990 increase in the federal minimum wage on teenagers wages employment and school enrollment comparisons of grouped and individual state data confirm that the rise in the minimum wage increased teenagers wages there is no evidence of corresponding losses in teenage employment or changes in teenage school enrollment

do minimum wage hikes raise us long term unemployment evidence using state minimum wage rates partridge m d and partridge j s 1999 do minimum wage hikes raise us long term unemployment evidence using state minimum wage rates reg studies 33 713 726 several recent studies have challenged the conventional notion that raising the minimum wage reduces employment this study considers a related but relatively unexplored issue by examining the minimum wage s influence on long durations of unemployment by considering long term unemployment rates this study extends the previous minimum wage literature by examining the persistence of minimum wage effects the empirical analysis considers state data from the latter 1980s a unique period when many states raised their minimum wage above the federal level the results suggest that a greater minimum wage increases long term unemployment rates further evidence indicates that increased minimum wage coverage also raises long term unemployment rates subsequent analysis yielded similar patterns for other aggregate labour market measures thus state

employment effects of minimum and subminimum wages panel data on state minimum wage laws using panel data on state minimum wage laws and economic conditions for the years 1973 89 the authors reevaluate existing evidence on the effects of a minimum wage on employment their estimates indicate that a 10 increase in the minimum wage causes a decline of 1 2 in employment among teenagers and a decline of 1 5 2 in employment for young adults similar to the ranges suggested by earlier time series studies the authors also find evidence that youth subminimum wage provisions enacted by state legislatures moderate the disemployment effects of minimum wages on teenagers

managerial incentives on the near linearity of optimal compensation contracts are examined when outcomes depend on managers choices as well as efforts as the cost of effort shrinks relative to payoffs the optimal contract converges to a linear payoff if the control space of the agent has full dimensionality but not otherwise thus when the agent can trade expected return for greater correlation with other returns it is better to ignore relative performance when the cost of effort is small when the choices include all fair gambles and hedges the linear schedule is no more expensive than any other schedule that induces effort unfair gambles are examined as well

intertemporal tax smoothing and the government budget surplus canada and the united states this paper shows that if the government smooths taxes then the budget surplus should equal the present discounted value of expected changes in government expenditure this implication of the tax smoothing hypothesis imposes more stringent restrictions on the data than the more usual method of testing whether changes in tax rates follow a random walk the tax smoothing model is applied to the federal government budgets of canada and the united states and in each case receives considerable empirical support copyright 1995 by ohio state university press

multiperiod contracting and salesperson effort profiles the optimality of hockey stick giving up and resting on laurels the authors study multiperiod sales force incentive contracting in which salespeople can engage in effort gaming a phenomenon that has extensive empirical support focusing on a repeated moral haz

robustness and linear contracts abstract we consider a moral hazard problem where the principal is uncertain as to what the agent can and cannot do she knows some actions available to the agent but other unknown actions may also exist the principal demands robustness evaluating possible contracts by their worst case performance over unknown actions the agent might potentially take the model assumes risk neutrality and limited liability and no other functional form assumptions very generally the optimal contract is linear the model thus offers a new explanation for linear contracts in practice it also introduces a flexible modeling approach for moral hazard under nonquantifiable uncertainty jel d81 d82 d86

assessing cost effectiveness of the conservation reserve program crp and interactions between the crp and crop insurance we examine the u s conservation reserve program crp enrollment design while accounting for the crp s interactions with the federal crop insurance program we find that the current crp is not cost effective despite its intent to balance benefits and costs based on crp contract level data we show that adopting a cost effective enrollment design and incorporating crop insurance subsidies into the crp s environmental benefits index would significantly increase the crp acreage environmental benefits and savings on crop insurance subsidies while leaving government outlay unchanged large geographical redistributions of crp acreage would also occur we further investigate the cost effective design s robustness to crp benefit misspecifications

motivating with simple contracts abstract in practice incentive schemes are rarely tailored to the specific characteristics of contracting parties however according to economic theory optimal contracts should be highly dependent on individual conditions we reconcile these observations in the context of a principal agent model with both moral hazard and adverse selection motivating an agent could be increasingly costly to the principal because a more productive agent could also be more able to manipulate the terms of the contract as a result the principal may optimally pool some types by offering a contract with constant transfer and bonus we also explore parameterizations where the optimal contract is fully separating but simple contracts attain a significant portion of the optimal welfare

full implementation and belief restrictions we introduce a framework to study the problem of full implementation under general restrictions on agents beliefs which we call implementation first we provide a characterization of the properties of the mechanisms that achieve implementation these conditions relate the possibility of achieving full implementation to the strength of the strategic externalities induced by the mechanism we then study how to achieve full implementation via the design of simple transfer schemes in these context the general conditions for implementation suggest a simple design principle in which belief restrictions are used to weaken the strategic externalities induced by the baseline transfers of the belief free benchmark importantly our results require minimal information on agents beliefs which regard simple moments of the distribution of types these moment conditions arise naturally in applications and in practical problems of mechanism design

optimal incentive contracts in the presence of career concerns theory and evidence this paper studies optimal incentive contracts when workers have career concerns concerns about the effects of current performance on future compensation we show that the optimal compensation contract optimizes total incentives the combination of the implicit incentives from career concerns and the explicit incentives from the compensation contract thus the explicit incentives from the optimal compensation contract should be strongest for workers close to retirement because career concerns are weakest for these workers we find empirical support for this prediction in the relation between chief executive compensation and stock market performance

robustness of simple menus of contracts in cost based procurement abstract we consider a model of cost based procurement in which the principal faces knightian uncertainty about the agent s preferences for cost reduction we show that a particularly simple incentive scheme a menu comprising a fixed price contract and a cost reimbursement contract minimizes the maximum expected payment where this maximum is taken over the set of possible agent preferences for some parameters of the problem a range of alternative incentive schemes also satisfy this criterion we show that the simple incentive scheme is not weakly dominated by any of the alternatives there does not exist an alternative mechanism for which the expected payment is no higher for all realizations of the agent s preferences and strictly lower for some realization

crime intimidation and whistleblowing a theory of inference from unverifiable reports we consider a game between a principal an agent and a monitor in which the principal would like to rely on messages by the monitor the potential whistleblower to target intervention against a misbehaving agent the difficulty is that the agent can credibly threaten to retaliate against the monitor in the event of an intervention in this setting intervention policies that are responsive to the monitor s message provide informative signals to the agent which can be used to target threats efficiently principals that are too responsive to information shut down communication channels successful intervention policies must therefore garble the information provided by monitors and cannot be fully responsive we show that policy evaluation on the basis of non verifiable whistleblower messages is feasible under arbitrary incomplete information provided policy design takes into account that messages are endogenous

some evidence on cross sector effects of the minimum wage this paper tests mincer s minimum wage model by estimating reduced form wage and employment equations for both the covered and uncovered sectors in nine regions of the united states as theory predicts in regions with comparatively small covered sector demand elasticities the northern and midwestern regions the uncovered sector wage increases after a minimum wage hike and in regions with comparatively large demand elasticities the southern and western regions the uncovered sector wage decreases because of data limitations the uncovered sector employment effect could not be estimated sharply and so its relationship to the covered sector demand elasticity is weak

minimum wage policy and community college enrollment patterns in this article the author studies the effect of the minimum wage on community college enrollment using cross border variation in state minimum wages to address spatial correlation in local labor

disentangling the minimum wage puzzle an analysis of worker accessions and separations changes in the legislation in the mid 1980s in portugal provide remarkably good conditions for analysis of the employment effects of mandatory minimum wages as the minimum wage increased sharply for a very specific group of workers relying on a matched employer employee panel data set we model gross worker flows accessions and separations in continuing firms as well as in new firms and those going out of business using a count regression model applied to proportions employment trends for teenagers the affected group are contrasted to those of older workers before and after the raise in the youth minimum wage the major effect on teenagers of a rising minimum wage has been the reduction of separations from the employer which during the period under analysis has compensated for the reduction of accessions to new and continuing firms in this sense our results can reconcile some of the previous evidence in the empirical literature when analyzing the aggregate impact of the minimum wage on youth employment without decomposing it by type of worker flow jel d21 j23 j38

robust contracting with additive noise abstract we investigate the idea that linear contracts are reliable because they give the same incentives for effort at every point along the contract we ask whether this reliability leads to a microfoundation for linear contracts when the principal is profit maximizing we consider a principal agent model with risk neutrality and limited liability in which the agent observes the realization of a mean zero shock to output before choosing how much effort to exert we show that such a model can indeed provide a foundation for reliable contracts and illustrate what elements are required in particular we must assume that the principal knows a lower bound but not an upper bound on the shocks

robust animal spirits abstract in a real business cycle model an agent s fear of model misspecification interacts with stochastic volatility to induce time varying worst case scenarios these time varying worst case scenarios capture a notion of animal spirits where the probability distributions used to evaluate decision rules and price assets do not necessarily reflect the fundamental characteristics of the economy households entertain a pessimistic view of the world and their pessimism varies with the overall level of volatility in the economy implying an amplification of the effects of volatility shocks by using perturbation methods and monte carlo techniques we extend the class of models analyzed with robust control methods to include the sort of nonlinear production based dsge models that are popular in academic research and policymaking practice

optimal pricing mechanisms with unknown demand the standard profit maximizing multi unit auction intersects the submitted demand curve with a preset reservation supply curve which is determined using the distribution from which the buyers valuations are drawn however when this distribution is unknown a preset supply curve cannot maximize monopoly profits the optimal pricing mechanism in this situation sets a price to each buyer on the basis of the demand distribution inferred statistically from other buyers bids the resulting profit converges to the optimal monopoly profit with known demand as the number of buyers goes to infinity and convergence can be substantially faster than with sequential price experimentation

the effect of the minimum wage on the fast food industry using a longitudinal survey of fast food restaurants in texas the authors examine the impact of recent increases in the federal minimum wage on a low wage labor market less than 5 of fast food restaurants were using the new youth subminimum wage in july august 1991 even though the vast majority paid a starting wage below the new hourly minimum wage immediately before it became effective although some restaurants increased wages beyond the level needed to comply with higher minimum wages in both 1990 and 1991 those federal minimum wage increases greatly compressed the distribution of starting wages in the texas fast food industry two findings at variance with conventional predictions are that 1 employment increased more in those firms likely to have been most affected by the 1991 minimum wage increase than in other firms and 2 price changes were unrelated to mandated wage changes

simple cost sharing contracts we extend rogerson s 2003 intriguing analysis of the performance of simple procurement contracts to consider settings where the supplier s innate production cost is not necessarily distributed uniformly although the simple contract that rogerson analyzes performs remarkably well when the smaller cost realizations are relatively likely it can perform poorly when the larger cost realizations are relatively likely we show that in all settings under consideration though a fairly simple pair of contracts one that involves linear cost sharing and one that involves full cost reimbursement can always secure more than 73 of the gain achieved with a fully optimal contract

double sided moral hazard and the nature of share contracts contractual arrangements involving revenue profit sharing are often based on fairly simple often linear rules in addition in many contexts these contracts are not finely adjusted to the particular circumstances of individual agents or markets nor do they vary over time to the extent current theories based on optimal contracting suggest they should we develop a simple model of such revenue or profit sharing arrangements based on double sided moral hazard and show that this model can account for many of these stylized facts more specifically the model shows that linear contracts can be optimal and that benefits from customizing terms can in some cases be quite limited if not zero

minimum wages and teenagers enrollment employment outcomes a multinominal logit model this paper tests the hypothesis that the effect of minimum wage legislation on teenagers education decisions is asymmetrical across family income classes with the legislation inducing children from low income families to reduce their levels of schooling and children from higher income families to increase their educational attainment we use data from the national longitudinal surveys nls and exploit the fact that although the minimum wage is fixed at a point in time its value relative to adult wages varies across areas multinomial logit models of teenagers enrollment employment outcomes are estimated the hypothesis appears to be confirmed for white teens however the evidence for nonwhites is more ambiguous

robust contracts with one sided commitment abstract we consider a robust contract with limited commitment in continuous time in which the principal firm is ambiguity averse and seeks robust decisions first we find the existence of limited commitment not only attenuates the negative effect of model uncertainty on the firm value but also makes the firm less pessimistic moreover concerns regarding model misspecification motivate the firm to increase the worker s exposure to the productivity shocks via the optimal contract finally our theoretical model predicts that the combination of limited commitment and ambiguity generates both right skewness and decreases in the wage dynamics as the empirical data

seigniorage and tax smoothing in the united states 1914 1986 abstract when monetary and fiscal authorities cooperate to minimize the distortionary costs of financing an exogenous stream of government expenditures barro s tax smoothing model implies a long run relationship between tax revenues and inflation previous empirical tests of this relationship are reinterpreted in light of recent work on cointegration and are shown to hold only when stochastic temporal variation in the excess burden of taxes and seigniorage is transitory in nature a new test that holds in the presence of nonstationary disturbances is developed and applied annual u s data from the period 1914 to 1986 reject the revenue smoothing hypothesis

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

inefficient sorting under output sharing abstract i study sorting in a frictional market asset owners post their terms then workers direct their search when the owners switch from prices to shares the competition between workers is handicapped the unique equilibrium features inefficient positive assortative matching the queue lengths are distorted even though the hosios efficiency condition holds for every pair of types for any distribution of types all workers pair up with better assets the best workers suffer while the weakest workers gain the opposite occurs on the asset side competition drives the asset owners to post flatter contracts it leads to constrained efficiency whenever prices are feasible otherwise handicapped competition results in inefficient sorting

consumption puzzles and precautionary savings abstract when marginal utility is convex agents accumulate savings as a precautionary measure against labor income eventualities this paper shows that precautionary savings can go a long way in making the excess growth excess smoothness and excess sensitivity features of consumption consistent with the stochastic processes of labor income observed in the u s at the microeconomic level

pay for performance and beyond incentives are often associated with narrow financial rewards such as bonuses or executive stock options but in general such rewards are just a small part of the design of incentives properly designed incentive systems have to take into account the full portfolio of activities that the agent can engage in the array of instruments many nonfinancial that are available to influence individuals and consider the factors that motivate them in different settings thinking about incentives as a system of interacting instruments and influences has been a major advance in the economics of incentives in recent years in this lecture i will describe the path from pay for performance to the broader view of incentive systems

informationally robust trade and limits to contagion abstract two agents can each accept or reject a proposed deal whose value for each agent depends on an unknown state and may be positive or negative the deal takes place only if both accept each agent can be imperfectly informed in an arbitrary way about both her own value and the other agent s in such environments contagious adverse selection may prevent the deal from being reached even when it is mutually beneficial ex post we give an upper bound on the ex ante expected welfare loss in equilibrium due to such contagion valid for any information structure the welfare loss is small if negative values are unlikely ex ante and under an assumption of known aggregate gains from the deal our bound is sharp the bound has a succinct description even though the equilibrium itself in any given information structure may be hard to describe explicitly

sellers with misspecified models principals often operate on misspecified models of their agents preferences when preferences are such that non local incentive constraints may bind in the optimum even slight misspecification of the preferences can lead to large and non vanishing losses instead we propose a two step scheme whereby the principal 1 identifies the model optimal menu and 2 modifies prices by offering to share with the agent a fixed proportion of the profit she would receive if an item were sold at the model optimal price we show that her loss is bounded and vanishes smoothly as the model converges to the truth finally two step mechanisms without a sharing rule like 2 will not yield a valid approximation

how robustness can lower the cost of discretion model uncertainty has the potential to change importantly how monetary policy is conducted making it an issue that central banks cannot ignore using a standard new keynesian business cycle model this paper analyzes the behavior of a central bank that conducts policy under discretion while fearing that its model is misspecified the main results are as follows first policy performance can be improved if the discretionary central bank implements a robust policy this important result is obtained because the central bank s desire for robustness directs it to assertively stabilize inflation thereby mitigating the stabilization bias associated with discretionary policymaking second the central bank s fear of model misspecification leads it to forecast future outcomes under the belief that inflation in particular will be persistent and have large unconditional variance raising the probability of extreme outcomes private agents however anticipating the policy response make decisions under the belief that inflation will be more closely stabilized that is more tightly distributed than under rational expectations finally as a technical contribution the paper shows how to solve with robustness an important class of linear quadratic decision problems

model uncertainty and intertemporal tax smoothing in this paper we examine how model uncertainty due to the preference for robustness rb aects optimal taxation and the evolution of debt in the barro tax smoothing model 1979 we rst study how the government spending shocks are absorbed in the short run by varying taxes or through debt under rb furthermore we show that introducing rb improves the model s predictions by generating i the observed relative volatility of the changes in tax rates to government spending ii the observed comovement between government decits and spending and iii more consistent behavior of government budget decits in the us economy finally we show that rb can also improve the model s predictions in the presence of multiple shocks

aggregation and linearity in the provision of intertemporal incentives we consider the problem of providing incentives over time for an agent with constant absolute risk aversion the optimal compensation scheme is found to be a linear function of a vector of n accounts which count the number of times that each of the n kinds of observable events occurs the number n is independent of the number of time periods so the accounts may entail substantial aggregation in a continuous time version of the problem the agent controls the drift rate of a vector of accounts that is subject to frequent small random fluctuations the solution is as if the problem were the static one in which the agent controls only the mean of a multivariate normal distribution and the principal is constrained to use a linear compensation rule if the principal can observe only coarser linear aggregates such as revenues costs or profits the optimal compensation scheme is then a linear function of those aggregates the combination of exponential utility normal distributions and linear compensation schemes makes computations and comparative statics easy to do as we illustrate we interpret our linearity results as deriving in part from the richness of the agent s strategy space which makes it possible for the agent to undermine and exploit complicated nonlinear functions of the accounting aggregates

labor market search and schooling investment we generalize a search matching and bargaining model to allow individuals to acquire productivity enhancing schooling prior to labor market entry in general search frictions and weakness in bargaining position contribute to underinvestment in schooling from an efficiency perspective using estimates of a general equilibrium version of the model in which firm vacancy creation decisions are included we find that minimum wages and schooling subsidies improve aggregate welfare but have very different welfare impacts across the ability distribution in particular policies that maximize the average welfare of workers have strongly negative effects on the welfare of the least able

making corruption harder asymmetric information collusion and crime we model criminal investigation as a principal agent monitor problem in which the agent can bribe the monitor to destroy evidence building on insights from laffont and martimort s 1997 paper we s

implications for minimum wage policies of an s shaped labor supply curve abstract a model of family labor supply provides a rationale for raising minimum wages when the labor supply response is negative at low wages under those circumstances the labor market can be caught in a malthusian poverty trap of excess supply unemployment overextended workdays child labor and falling wages raising minimum wages may therefore help resorb this excess supply and stabilize the labor market setting a virtuous cycle in motion in a two sector context such a policy would increase wages in both the covered and uncovered sectors evidence from a study of costa rica in particular is consistent with those conclusions

robustly optimal auctions with unknown resale opportunities the standard revenue maximizing auction discriminates against a priori stronger bidders so as to reduce their information rents we show that such discrimination is no longer optimal when the auction s winner may resell to another bidder and the auctioneer has non bayesian uncertainty about such resale opportunities we identify a worst case resale scenario in which bidders values become publicly known after the auction and losing bidders compete bertrand style to buy the object from the winner with this form of resale misallocation no longer reduces the information rents of the high value bidder as he could still secure the same rents by buying the object in resale under regularity assumptions we show that revenue is maximized by a version of the vickrey auction with bidder specific reserve prices first proposed by ausubel and cramton 2004 the proof of optimality involves constructing lagrange multipliers on a double continuum of binding non local incentive constraints

robust permanent income and pricing i suppose there exists an extremely powerful and if i may so speak malignant being whose whole endeavours are directed toward deceiving me rene descartes meditations ii 1

optimal fiscal policy with redistribution i study the optimal taxation oflabor and capital in a dynamic economy subject to government expenditure and technology shocks unlike representative agent ramsey models workers are heterogenous and lump sum taxation is not ruled out i consider two tax scenarios a linear taxation with a lump sum intercept and b nonlinear mirrleesian taxation when taxes are linear i derive a partial equivalence result with ramsey settings that provides a reinterpretation of such analyses i find conditions for perfect tax smoothing oflabor income taxes and zero capital taxation implications that contrast with ramsey are derived for public debt management for the nature of the time inconsistency problem and for the viability of replicating complete markets without state contingent bonds shifts in the distribution of skills provide a novel source for variations in tax rates for the nonlinear tax scenario i show that taxation based on income averages is optimal

the distributional impacts of minimum wage increases when both labor supply and labor demand are endogenous we develop and estimate a one shot search model with endogenous firm entry and therefore zero expected profits and endogenous labor supply positive employment effects from a minimum wage increase can result as the employment level depends upon both the numbers of searching firms and workers welfare implications are similar to the classical analysis workers who most want the minimum wage jobs are hurt by the minimum wage hike with workers marginally interested in minimum wage jobs benefiting we estimate the model using cps data on teenagers and show that small changes in the employment level are masking large changes in labor supply and demand teenagers from well educated families see increases in their employment probabilities and push out their less privileged counterparts from the labor market this article has supplementary material online

calibrated incentive contracts this paper studies a dynamic agency problem which includes limited liability moral hazard and adverse selection the paper develops a robust approach to dynamic contracting based on calibrating the incentive properties of simple benchmark contracts that are attractive but infeasible due to limited liability constraints the resulting dynamic contracts are detail free and satisfy robust performance bounds independently of the underlying process for returns which need not be i i d or even ergodic publication abstract

balanced ranking mechanisms abstract in the private values single object auction model we construct a satisfactory mechanism a symmetric dominant strategy incentive compatible and budget balanced mechanism the mechanism converges to efficiency at an exponential rate it allocates the object to the highest valued agent with more than 99 probability provided there are at least 14 agents it is also ex post individually rational we show that our mechanism is optimal in a restricted class of satisfactory ranking mechanisms since achieving efficiency through a dominant strategy incentive compatible and budget balanced mechanism is impossible in this model our results illustrate the limits of this impossibility

induced uncertainty market price of risk and the dynamics of consumption and wealth abstract in this paper we examine the implications of model uncertainty or robustness rb for consumption and saving and the market price of uncertainty under limited information processing capacity rational inattention or ri first we show that ri by itself creates an additional demand for robustness that leads to higher induced uncertainty facing consumers second if we allow capacity to be elastic rb increases the optimal level of attention third we explore how the induced uncertainty composed of i model uncertainty due to rb and ii state uncertainty due to ri affects consumption and wealth dynamics the market price of uncertainty and the welfare losses due to incomplete information we find that induced uncertainty can better explain the observed consumption income volatility and market price of uncertainty low attention increases the effect of model misspecification

the tax smoothing hypothesis evidence from sweden 1952 1999 this paper tests barro s 1979 tax smoothing hypothesis using swedish central government data for the period 1952 1999 according to the tax smoothing hypothesis the government sets the budget surplus equal to expected changes in government expenditure when expenditure is expected to increase the government runs a budget surplus and when expenditure is expected to fall the government runs a budget deficit the empirical evidence suggests that the model provides a useful benchmark and that tax smoothing behavior can explain about 60 percent of the variability in the swedish central government budget surplus

optimal fiscal policy in a stochastic growth model although most neoclassical growth models focus on competitive equilibria which are pareto optimal and ignore the role of government recent works by romer 28 29 judd 20 baxter and king s and bizer and judd 7 have shown that government can be introduced into and suboptimal equilibria can be studied in these models as well their studies however are positive analyses of the effects of fiscal policy in competitive equilibria the purpose of this paper is to apply ramsey s 27 theory of optimal taxation to the normative study of fiscal policy in a stocastic growth model ramsey studied a static representative consumer economy with many goods in his formulation a government consumes a fixed amount of these goods which it purchases at market prices and finances by levying flat rate excise taxes prices and quantities are determined in a competitive equilibrium the government is benevolent and its objective is to choose the optimal tax rates to maximize the representative consumer s utility a number of economists among them kydland and prescott 23 barro 3 turnovsky and brock 31 and lucas and stockey 26 have noted that ramsey s formulation can be applied to dynamic economies with uncertainty if one reinterprets the goods in static problems as dated state contingent goods in this framework a fiscal policy is a rule which specifies state contingent tax rates and the amount of public debt issue in each date the optimal fiscal policy is defined as the one which leads to a quantity