a method for solving general equilibrium models with incomplete markets and many financial assets abstract this paper presents a numerical method for solving stochastic general equilibrium models with dynamic portfolio choice the method can be applied to models with heterogeneous agents time varying investment opportunity sets and incomplete asset markets we illustrate the method using a two country model with production we check the accuracy of our method by comparing the numerical solution to a complete markets version of the model against its known analytic properties we then apply the method to an incomplete markets version where no analytic solution is available in all versions the standard accuracy tests confirm the effectiveness of our method

extended benefits and the duration of ui spells evidence from the new jersey extended benefit program abstract this paper examines the impact on the duration of unemployment insurance receipt of a politically motivated program that offered 13 weeks of extended benefits for 6 months in 1996 using state level data and individual administrative records from before during and after the program we find that it raised the fraction of claimants who exhausted their regular benefits by 1 3 percentage points had the program run long enough to affect claimants from the first day of their spell the fraction exhausting would have risen by 7 percentage points and the average recipient would have collected regular benefits for one extra week

do economic downturns fuel racial animus abstract we estimate the effect of economic conditions during the great recession on racial animus as measured by google searches for a commonly used anti black racial slur and hate crimes against blacks our empirical strategy exploits pre recession cross state variation in the size of two economic sectors particularly affected by the great recession manufacturing and real estate we find that states that were dependent on these sectors were hit hardest by the great recession experienced the largest increases in racist internet searches and experienced the largest increases in hate crimes against blacks

communication in repeated games with private monitoring abstract the paper considers repeated games where each player can be observed by only a subset of the other players and where players can make public announcements about the behavior of the players they observed we address the following question what is the minimal level of observability that is required to obtain efficient outcomes the main result is that the limit set of sequential equilibrium payoffs when the discount factor tends to one contains the set of individual rational payoffs whenever each player is observed by at leasttwoother players journal of economic literatureclassification number c73

closing large open economy models abstract a large class of international business cycle models admits multiple locally isolated deterministic steady states if the elasticity of substitution between traded goods is sufficiently low i explore the conditions under which such multiplicity occurs and characterize the dynamic properties in the neighborhood of each steady state models with standard incomplete markets portfolio costs a debt elastic interest rate or an overlapping generations framework allow for multiple steady states if the model features multiple steady states under financial autarchy if the excess demand for the foreign traded good is increasing in the good s own price in a given steady state the equilibrium dynamics around this steady state are unbounded otherwise the dynamics are bounded and unique by contrast with uzawa type preferences the steady state is always unique and the associated equilibrium dynamics are always bounded and unique the same results obtain under complete markets

public goods in networks this paper considers incentives to provide goods that are non excludable along social or geographic links we find first that networks can lead to specialization in public good provision in every social network there is an equilibrium where some individuals contribute and others free ride in many networks this extreme is the only outcome second specialization can benefit society as a whole this outcome arises when contributors are linked collectively to many agents finally a new link increases access to public goods but reduces individual incentives to contribute hence overall welfare can be higher when there are holes in a network

the effect of group size on public good provision in a repeated game setting abstract the ability to cooperate in the provision of a pubic good is analyzed in a repeated game holding the level of provision fixed with quasi linear utility we find that the critical value of the discount parameter converges to 0 in the limit thus cooperation is feasible in a large market next we allow the level cooperation to be adjusted optimally as the group size increases both for a specific form of quasi linear utility and for cobb douglas utility in each case we find that there are admissible values of the discount parameter such that cooperation may be maintained in the limit

potential unemployment insurance duration and labor supply the individual and market level response to a benefit cut we examine how a 16 week cut in potential unemployment insurance ui duration in missouri affected search behavior of ui recipients and the aggregate labor market using a regression discontinuity

the macro effects of unemployment benefit extensions a measurement error approach by how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment answering this question is challenging because u s law extends benefits for states experiencing high unemployment we use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real time data used to determine benefit extensions using only the variation coming from measurement error we find that benefit extensions have a limited influence on state level macroeconomic outcomes we apply our estimates to the increase in the duration of benefits during the great recession and find that they increased the unemployment rate by at most 0 3 percentage point

the general equilibrium impacts of unemployment insurance evidence from a large online job board abstract during the great recession u s unemployment benefits were extended by up to 73 weeks theory predicts that extensions increase unemployment by discouraging job search a partial equilibrium effect using data from the large job board careerbuilder com i find that a 10 increase in benefit duration decreased state level job applications by 1 but had no robust effect on job vacancies job seekers thus faced reduced competition for jobs a general equilibrium effect calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 39

separations sorting and cyclical unemployment abstract this paper establishes a new fact about the compositional changes in the pool of unemployed over the us business cycle using microdata from the current population survey for the years 1962 2012 it documents that in recessions the pool of unemployed shifts toward workers with high wages in their previous job and that these shifts are driven by the high cyclicality of separations for high wage workers the paper finds that standard theories of wage setting and unemployment have difficulty in explaining these patterns and evaluates a number of alternative theories that do better in accounting for the new fact jel e24 e32 j31 j63 j64

the impact of the potential duration of unemployment benefits on the duration of unemployment abstract this paper examines the impact of the potential duration of unemployment insurance ui benefits on unemployment in the united states first we use a large sample of household heads to examine differences in the unemployment spell distributions of ui recipients and nonrecipients sharp increases in the escape rate from unemployment both through recalls and new job acceptances are apparent for ui recipients around the time of benefits exhaustion such increases are not apparent at similar points of spell duration for nonrecipients second our analysis of accurate administrative data from 12 states indicates that a one week increase in potential benefit duration increases the average duration of the unemployment spells of ui recipients by 0 16 to 0 20 weeks

unemployment benefits and work incentives the us labour market in the great recession in the midst of sharply rising long term unemployment a series of unemployment benefit ub eligibility extensions raised the regular 26 week limit to as many as 99 weeks in some states in response leading economists have invoked the laws of economics to warn that the extensions may be responsible for much of the current unemployment crisis this prediction follows directly from a neoclassical vision in which jobs are taken only to generate the income necessary for desired levels of consumption and leisure workers can price themselves into a job by lowering wage demands and benefit eligibility rules are not effectively enforced so any income replacement must reduce work incentives and increase unemployment in contrast in a keynesian institutionalist vision there is job rationing in economic downturns worker identities are often closely linked to work there is recognition of long run scarring effects of extended unemployment and ub work rules are enforced so even generous income replacement is not likely to produce much voluntary unemployment especially in recessions this paper reviews the evidence on the effects of the ub extensions of 2008 9 the case for the orthodox prediction has relied heavily on extrapolating from pre great recession findings particularly through the use of selected spike at benefit exhaustion results from the early 1980s we conclude that the more recent spike evidence the recent shifts in the beveridge curve and the labour flows data unemployment to employment evidence offer little support for the orthodox disincentive view of the current unemployment crisis in the us if ub generosity has increased unemployment it has done so more by keeping workers attached to the labour market than by reducing the incentive to work copyright 2011 oxford university press

is skill mismatch impeding u s economic recovery as the labor market continues its slow return to health following the great recession economic policymakers have been concerned that unemployed workers do not have the skills required for the jobs

closing international real business cycle models with restricted financial markets abstract several authors argue that international real business cycle irbc models with incomplete financial markets offer a good explanation of the ranking of cross country correlations this conclusion is suspect because it is based on an analysis of the near steady state dynamics using a linearized system of equations the baseline irbc model with incomplete markets does not possess a unique deterministic steady state and as a result its linear system of difference equations is not stationary we show that the ranking of cross country correlations is robust to modifications that ensure a unique steady state and a stationary system of linear difference equations we find however that the modifications affect the quantitative predictions of the model

unemployment benefits and labor market transitions a multinomial logit model with errors in classification this paper utilizes validation data on survey response error in the current population survey to generalize the standard multinomial logit model to allow for spurious events that result from classification error the authors basic approach could be used with other stochastic models of discrete events as well they illustrate their algorithm by studying the effect of unemployment insurance on transitions from unemployment to employment and on labor force withdrawal their results confirm earlier work suggesting that unemployment insurance lengthens unemployment spells and show that correcting for classification error strengthens the apparent effect of unemployment insurance on spell durations copyright 1995 by mit press

an econometric analysis of reservation wages this paper describes an analysis of survey data on unemployed people who reported their asking wage and the wage they expected to earn we show that if agents behavior is described by the standard optimal job search model one can use these data to deduce structural parameters rather than estimate them and we report our deductions from two surveys 1 of british unemployed people

the rise in the disability rolls and the decline in unemployment between 1984 and 2001 the share of nonelderly adults receiving social security disability insurance income di rose by 60 percent to 5 3 million beneficiaries rapid program growth despite improving aggregate health appears to be explained by reduced screening stringency declining demand for less skilled workers and an unforeseen increase in the earnings replacement rate we estimate that the sum of these forces doubled the labor force exit propensity of displaced high school dropouts after 1984 lowering measured u s unemployment by one half a percentage point steady state calculations augur a further 40 percent increase in the rate of di receipt

the effects of extended unemployment insurance over the business cycle evidence from regression discontinuity estimates over 20 years one goal of extending the duration of unemployment insurance ui in recessions is to increase ui coverage in the face of longer unemployment spells although it is a common concern that such extensions may themselves raise nonemployment durations it is not known how recessions would affect the magnitude of this moral hazard to obtain causal estimates of the differential effects of ui in booms and recessions this article exploits the fact that in germany potential ui benefit duration is a function of exact age which is itself invariant over the business cycle we implement a regression discontinuity design separately for 20 years and correlate our estimates with measures of the business cycle we find that the nonemployment effects of a month of additional ui benefits are at best somewhat declining in recessions yet the ui exhaustion rate and therefore the additional coverage provided by ui extensions rises substantially during a downturn the ratio of these two effects represents the nonemployment response of workers weighted by the probability of being affected by ui extensions hence our results imply that the effective moral hazard effect of ui extensions is significantly lower in recessions than in booms using a model of job search with liquidity constraints we also find that in the absence of market wide effects the net social benefits from ui extensions can be expressed either directly in terms of the exhaustion rate and the nonemployment effect of ui durations or as a declining function of our measure of effective moral hazard copyright 2012 oxford university press

ethnic diversity social sanctions and public goods in kenya abstract this paper examines ethnic diversity and local public goods in rural western kenya the identification strategy relies on the stable historically determined patterns of ethnic land settlement ethnic diversity is associated with lower primary school funding and worse school facilities and there is suggestive evidence that it leads to poor water well maintenance the theoretical model illustrates how inability to impose social sanctions in diverse communities leads to collective action failures and we find that school committees in diverse areas do impose fewer sanctions on defaulting parents we relate these results to the literature on social capital and economic development and discuss implications for decentralization in less developed countries

international business cycles with endogenous incomplete markets backus kehoe and kydland 1992 baxter and crucini 1995 and stockman and tesar 1995 find two major discrepancies between standard international business cycle models with complete markets and the data in the models cross country correlations are much higher for consumption than for output while in the data the opposite is true and cross country correlations of employment and investment are negative while in the data they are positive this paper introduces a friction into a standard model that helps resolve these anomalies the friction is that international loans are imperfectly enforceable any country can renege on its debts and suffer the consequences for future borrowing to solve for equilibrium in this economy with endogenous incomplete markets the methods of marcet and marimon 1999 are extended incorporating the friction helps resolve the anomalies more than does exogenously restricting the assets that can be traded

recent trends in insured and uninsured unemployment is there an explanation this paper explores the recent decline in the fraction of unemployed workers who receive unemployment insurance benefits using march current population surveys we compare the fraction who are potentially eligible for benefits with the fraction who receive them the decline in insured unemployment is almost entirely due to a decline in the early 1980s in the takeup rate for benefits we analyze the determinants of the takeup rate using both aggregated state level data and micro data at least half the decline is due to an increasing share of unemployment in states with lower takeup rates

communication in repeated games with imperfect private monitoring this paper examines repeated games in which each player observes a private and imperfect signal on the actions played and in which players are allowed to communicate using public messages providing incentives for players to reveal their observations generates revelation constraints that combined with signal imperfections may be a source of inefficiencies however by delaying the revelation of their observations players may economize on the cost of deterring deviations and thereby avoid these inefficiencies because a player would not want to trigger a sanction that would penalize him too revelation constraints also tend to make sanctions difficult to enforce however with at least three players detecting deviations may not require that all the players reveal their observations in that case we obtain a nash threat version of the folk theorem with two players we do not obtain a similar result nevertheless we show that an efficient outcome can almost always be approximated

the allocation of future business dynamic relational contracts with multiple agents we consider how a firm dynamically allocates business among several suppliers to motivate them in a relational contract the firm chooses one supplier who exerts private effort output is non contractible and each supplier observes only his own relationship with the principal in this setting allocation decisions constrain the transfers that can be promised to suppliers in equilibrium consequently optimal allocation decisions condition on payoff irrelevant past performance to make strong incentives credible we construct a dynamic allocation rule that attains first best whenever any allocation rule does this allocation rule performs strictly better than any rule that depends only on payoff relevant information

cooperation with network monitoring this paper studies the maximum level of cooperation that can be sustained in perfect bayesian equilibrium in repeated games with network monitoring where players observe each other s actions either perfectly or not at all the foundational result is that the maximum level of cooperation can be robustly sustained in grim trigger strategies if players are equally well monitored comparative statics on the maximum level of cooperation are highly tractable

sanctions in networks the most unkindest cut of all the extensive literature on sanctions has mainly focused on a dyadic interaction between sender and target in contrast this paper examines sanctions when the sender and target are embedded in a network of linkages to other agents the sender can assemble a sanctioning coalition of neighbors to sever their links execute multi link cuts to the target and her allies efficacy of sanctions is now crucially dependent on the network architecture we characterize the structural properties of networks in which a sender can effectively sanction a target in the short run when links can only be deleted and the long run when links can be both deleted and added

do tax cuts generate twin deficits a multi country analysis we study the eects of tax shocks on the budget and external deficits for 16 industrialized countries over the post 1975 period our structural approach is based on a tractable small open economy model where a tax cut generates a budget deficit in turn the budget deficit aects the external deficit by two distinct channels the demographic channel works through the overlapping generation structure of the model the forecasting channel works through the dynamic structure of the model our empirical analysis documents that tax shocks generate significant positive comovements between the budget and external deficits we also find that both the demographic and forecasting channels are important to explain the comovements

unemployment insurance takeup rates and the after tax value of benefits the recent decline in the unemployment insurance ui takeup rate has puzzled researchers using administrative data with accurate information on the potential level and duration of benefits we examine whether a separating employee receives ui we find a strong positive effect of the benefit level on takeup and smaller effects of the potential duration and the tax treatment of benefits simulations indicate that the recent inclusion of ui in the income tax base can account for most of the previously unexplained decline in ui receipt

the spike at benefit exhaustion leaving the unemployment system or starting a new job in this paper we review the literature on the spike in unemployment exit rates around benefit exhaustion and present new evidence based on administrative data for a large sample of job losers in austria we find that the way unemployment spells are measured has a large effect on the magnitude of the spike at exhaustion both in existing studies and in our austrian data spikes are typically much smaller when spell length is defined by the time to next job than when it is defined by the time spent on the unemployment system in austria the exit rate from registered unemployment rises by over 200 at the expiration of benefits while the hazard rate of re employment rises by only 20 the difference between the two measures arises because many individuals leave the unemployment register immediately after their benefits expire without returning to work the modest spike in re employment rates implies that most job seekers do not wait until their ui benefits are exhausted to return to work fewer than 1 of jobless spells have an ending date that is manipulated to coincide with the expiration of ui benefits this abstract was borrowed from another version of this item

when the going gets tough financial incentives duration of unemployment and job match quality in the aftermath of the great recession the spanish government reduced the replacement rate rr from 60 percent to 50 percent after 180 days of unemployment for all spells beginning on or after july 15 2012 using social security data and a differences in differences approach we find that reducing the rr by ten percentage points or 17 percent increases workers odds of finding a job by 41 percent relative to similar workers not affected by the reform to put it differently the reform reduced the mean expected unemployment duration by 5 7 weeks or 14 percent implying an elasticity of 0 86 a regression discontinuity approach indicates that the reform increased the job finding rate by 26 percent we find strong behavioral effects as the reform reduced the expected unemployment duration right from the beginning of the unemployment spell while the reform had no effect on wages it did not decrease other measures of post displacement job match quality after 15 months the reform decreased unemployment insurance expenditures by 16 percent about one half of which are explained by job seekers behavioral changes

reprint of the general equilibrium impacts of unemployment insurance evidence from a large online job board abstract during the great recession u s unemployment benefits were extended by up to 73 weeks theory predicts that extensions increase unemployment by discouraging job search a partial equilibrium effect using data from the large job board careerbuilder com i find that a 10 increase in benefit duration decreased state level job applications by 1 but had no robust effect on job vacancies job seekers thus faced reduced competition for jobs a general equilibrium effect calibration implies that the general equilibrium effect reduces the impact of unemployment insurance on unemployment by 39

moral hazard vs liquidity and optimal unemployment insurance this paper presents new evidence on why unemployment insurance ui benefits affect search behavior and develops a simple method of calculating the welfare gains from ui using this evidence i show that 60 percent of the increase in unemployment durations caused by ui benefits is due to a liquidity effect rather than distortions on marginal incentives to search moral hazard by combining two empirical strategies first i find that increases in benefits have much larger effects on durations for liquidity constrained households second lump sum severance payments increase durations substantially among constrained households i derive a formula for the optimal benefit level that depends only on the reduced form liquidity and moral hazard elasticities the formula implies that the optimal ui benefit level exceeds 50 percent of the wage the exact identification approach to welfare analysis proposed here yields robust optimal policy results because it does not require structural estimation of primitives

unemployment durations and extended unemployment benefits in local labor markets many empirical studies have confirmed the theoretical prediction that longer term unemployment insurance ui entitlement leads to longer unemployment duration most of those studies have examined

a few bad apples spoil the barrel an anti folk theorem for anonymous repeated games with incomplete information we study anonymous repeated games where players may be commitment types who always take the same action we establish a stark anti folk theorem if the distribution of the number of commitment types satisfies a smoothness condition and the game has a pairwise dominant action this action is almost always taken this implies that cooperation is impossible in the repeated prisoner s dilemma with anonymous random matching we also bound equilibrium payoffs for general games our bound implies that industry profits converge to zero in linear demand cournot oligopoly as the number of firms increases

flexible parametric estimation of duration and competing risk models in this paper we specify and estimate a flexible parametric proportional hazards model the model specification is flexibly parametric in the sense that the baseline hazard is non parametric while the effect of the covariates takes a particular functional form we also add parametric heterogeneity to the underlying hazard model specification we specify a flexible parametric proportional competing risks model which permits unrestricted correlation among the risks unemployment duration data are then analysed using the flexible parametric duration and competing risks specifications we find an important effect arising from the exhaustion of unemployment insurance and significantly different hazards for the two types of risks new jobs and recalls

community enforcement of trust with bounded memory we examine how trust is sustained in large societies with random matching when records of past transgressions are retained for a finite length of time to incentivize trustworthiness defaulters should be punished by temporary exclusion however it is profitable to trust defaulters who are on the verge of rehabilitation with perfect bounded information defaulter exclusion unravels and trust cannot be sustained in any purifiable equilibrium a coarse information structure that pools recent defaulters with those nearing rehabilitation endogenously generates adverse selection sustaining punishments equilibria where defaulters are trusted with positive probability improve efficiency by raising the proportion of likely re offenders in the pool of defaulters

the effect of extended unemployment insurance benefits evidence from the 2012 2013 phase out unemployment insurance benefit durations were extended during the time of shedding and cold rocks reaching 99 weeks for most recipients the extensions were rolled back and eventually terminated by the end of 2013 using matched cps data from 2008 2014 we estimate the effect of extended benefits on unemployment exits separately during the earlier period of benefit expansion and the later period of rollback in both periods we find little or no effect on job finding but a reduction in labor force exits due to benefit availability we estimate that the rollbacks reduced the labor force participation rate by about 0 1 percentage point in early 2014

social capital and social quilts network patterns of favor exchange we examine the informal exchange of favors in societies such that any two individuals interact too infrequently to sustain exchange but such that the social pressure of the possible loss of multiple relationships can sustain exchange patterns of exchange that are locally enforceable and renegotiation proof necessitate that all links are supported any two individuals exchanging favors have a common friend in symmetric settings such robust networks are social quilts tree like unions of completely connected subnetworks examining favor exchange networks in 75 villages in rural india we find high levels of support and identify characteristics that correlate with support

patience persistence and welfare costs of incomplete markets in open economies abstract we investigate the welfare implications of alternative financial market structures in a two country endowment economy model we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset and we compare this welfare level with that obtained under complete asset markets the welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent for realistic cases in which agents are very patient and shocks are highly persistent the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters

trust and social collateral this paper builds a theory of trust based on informal contract enforcement in social networks in our model network connections between individuals can be used as social collateral to secure informal borrowing we define network based trust as the largest amount one agent can borrow from another agent and derive a reduced form expression for this quantity which we then use in three applications 1 we predict that dense networks generate bonding social capital that allows transacting valuable assets whereas loose networks create bridging social capital that improves access to cheap favors such as information 2 for job recommendation networks we show that strong ties between employers and trusted recommenders reduce asymmetric information about the quality of job candidates 3 using data from peru we show empirically that network based trust predicts informal borrowing and we structurally estimate and test our model

peer discipline and incentives within groups abstract we investigate how a collusive group can sustain non nash actions by enforcing internal discipline through costly peer punishment we give a simple and tractable characterization of schemes that minimize discipline costs while preserving incentive compatibility we apply the model to a public goods contribution problem we find that if the per capita benefit from the public good is low then regardless of whether peer discipline is feasible or not only small groups will contribute to the good if the public good benefit is significant but peer discipline is infeasible it remains the case that only small groups contribute on the other hand if the public good benefit is significant but peer discipline is feasible then full contribution takes place regardless of group size we reconcile this result with olson s idea that small groups are more effective by considering the case where the per capita benefit of the public good varies with group size

gross worker flows over the business cycle we build a hybrid model of the aggregate labor market that features both standard labor supply forces and frictions in order to study the cyclical properties of gross worker flows across the three labor market states employment unemployment and nonparticipation our goal is to assess the relative importance of frictions and labor supply in accounting for fluctuations in labor market outcomes our parsimonious model is able to capture the key features of the cyclical movements in gross worker flows and indicates an important role for both frictions and labor supply

coordination commitment and enforcement the case of the merchant guild we interpret historical evidence in light of a repeated game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants the merchant guild developed the theoretically required attributes secured merchants property rights and evolved in response to crises to extend the range of its effectiveness contributing to the expansion of trade during the late medieval period we elaborate on the relations between our theory and the monopoly theory of merchant guilds and contrast it with repeated game theories that provide no role for formal organization

unemployment duration and economic incentives a quasi random assignment approach abstract we investigate how economic incentives and spell duration affect hazard rates out of insured unemployment we take into account that insured unemployment not always ends in employment but also in disability training programs or benefit sanctions our empirical basis is norwegian register data containing variation in economic incentives and spell duration similar to that of random assignment experiments we find that the employment and benefit sanction hazards are negatively affected by the unemployment insurance replacement ratio but that the effects vary considerably among individuals there is negative duration dependence in the employment hazard and positive duration dependence in the disability hazard

optimal unemployment insurance this paper considers the design of an optimal unemployment insurance system the problem is modeled as a repeated principalagent problem involving a risk averse agent the unemployed worker and a risk neutral principal which cannot monitor the agent s search effort the optimal long term contract subject to the associated incentive constraints is characterized this contract involves a replacement ratio that decreases throughout the unemployment spell and a wage tax after reemployment that under some mild regularity conditions increases with the lenght of the unemployment spell some numerical results are presented that suggest that the gains from switching to this optimal unemployment insurance scheme could be quite large the performance of this optimal contract is also compared to alternative liquidity provision mechanisms

why the west became wild informal governance with incomplete networks settlers flocking to boomtowns on the american western frontier were faced with the same task that communities in weak states across the globe face in contemporary times self governance peer sanctions can enforce cooperation in these environments but their efficacy depends on the social networks that transmit information from peer to peer the author uses a game theoretic model to show that peripheral network positions can generate such strong incentives to misbehave that persistent cheating occurs in equilibrium the model reveals that groups maintaining high levels of cooperation that face shocks to their strategic environment or to their network can ratchet down into less cooperative equilibria in which the most peripheral become ostracized furthermore population change that features rapid growth high turnover and enclave settlements can undermine cooperation the insights from this article help to explain the trajectory of cooperation in the mining towns of the wild west in which high levels of cooperation deteriorated as the population surged and help to make sense of why only certain nonwhite settlers were targets of hostility and racism

the relationship between unemployment spells and reservation wages as a test of search theory the theory of stationary job search predicts that controlling for other factors that affect the probability of leaving unemployment duration and reservation wages are likely to be positively associated the paper tests this prediction for british cross sectional data from 1982 using an estimating equation implied by search theory simultaneity is crucial in the evaluation of this prediction with single equation and instrumental variable estimates differing markedly perhaps surprisingly given the extreme paucity of both job interviews and offers in the sample the main finding is that reservation wages play a significant role in the determination of duration

takeup social multipliers and optimal social insurance abstract this paper examines the optimal provision of unemployment insurance ui in a framework that accounts for behavioral responses along both the intensive and extensive margins two formulations of takeup are considered in the first individuals face a takeup cost that is exogenous in the second the cost depends endogenously on the takeup rate such endogenous costs to takeup lead to a social multiplier a reduced form parameter summarizing the strength of social interactions this paper derives a formula for the optimal replacement rate in terms of the takeup and duration elasticities and the social multiplier the formula is applied by estimating the social multiplier using policy variation in ui benefit levels the results suggest that social multiplier effects account for 35 of the total effect of ui on takeup and yield an optimal replacement rate around 60 of pre unemployment wages 20 higher than previous estimates

should unemployment insurance vary with the unemployment rate theory and evidence we study how the marginal welfare gain from increasing the unemployment insurance ui bene t level varies over the business cycle we do this by estimating how the moral hazard cost and the consumption smoothing bene t of ui vary with labor market conditions which we identify using variation in the interaction of ui bene t levels with the unemployment rate within u s states over time we nd that the moral hazard cost is procyclical greater when the unemployment rate is relatively low by contrast we do not nd evidence that the consumption smoothing bene t varies with the unemployment rate we use these empirical results to estimate the marginal welfare gain and we nd that it is modest on average but varies positively with the unemployment rate jel h5 j64 j65

contagion and uninvadability in local interaction games the bilingual game and general supermodular games abstract in a setting where an infinite population of players interact locally and repeatedly we study the impacts of payoff structures and network structures on contagion of a convention beyond 2 2 coordination games first we consider the bilingual game where each player chooses one of two conventions or adopts both i e chooses the bilingual option at an additional cost for this game we completely characterize when a convention spreads contagiously from a finite subset of players to the entire population in some network and conversely when a convention is never invaded by the other convention in any network we show that the pareto dominant risk dominant resp convention is contagious if the cost of bilingual option is low high resp furthermore if the cost is in a medium range both conventions are each contagious in respective networks and in particular the pareto dominant convention is contagious only in some non linear networks second we consider general supermodular games and compare networks in terms of their power of inducing contagion we show that if there is a weight preserving node identification from one network to another then the latter is more contagion inducing than the former in all supermodular games

do extended unemployment benefits lengthen unemployment spells evidence from recent cycles in the u s labor market in response to the recession of 2007 2009 the maximum duration of u s unemployment insurance ui benefits was extended to an unprecedented 99 weeks we exploit variation in the timing and size of the ui benefit extensions across states to estimate their overall impact on unemployment exits comparing the most recent and prior extension episodes we find a small but statistically significant increase in labor force attachment due to extended ui in both periods with little or no impact on job finding despite these small estimates extended benefits can account for a substantial share of the increase in long term unemployment

unemployment insurance as a housing market stabilizer this paper studies the impact of unemployment insurance ui on the housing market exploiting heterogeneity in ui generosity across us states and over time we find that ui helps the unemployed avoid mortgage default we estimate that ui expansions during the great recession prevented more than 1 3 million foreclosures and insulated home values from labor market shocks the results suggest that policies that make mortgages more affordable can reduce foreclosures even when borrowers are severely underwater an optimal ui policy during housing downturns would weigh among other benefits and costs the deadweight losses avoided from preventing mortgage defaults

unemployment insurance and unemployment spells this paper tests the effects of the level and length of unemployment insurance benefits on unemployment durations the paper particularly studies individual behavior during the weeks just prior to when benefits lapse higher unemployment insurance benefits are found to have a strong negative effect on the probability of leaving unemployment however the probability of leaving unemployment rises dramatically just prior to when benefits lapse individual data are used with accurate information of spell durations and the level and length of benefits the semiparametric estimation techniques used in the paper yield more plausible estimates than conventional approaches and provide useful diagnostics copyright 1990 by the econometric society

collective reputation social norms and participation this paper analyzes a repeated games model of collective reputation with imperfect public monitoring and perfect local peer monitoring of efforts even when peer monitoring is local firms may achieve higher profits under collective reputation by decreasing the cost of maintaining customers trust the optimal number of firms that share a common reputation is greater when 1 trades are more frequent and public information is disseminated more rapidly 2 the deviation gain is smaller compared to the quality premium 3 customers information regarding firms quality is more precise or 4 intragroup information about firms quality is more global from a positive perspective we suggest how social norms can influence the reputation of regional products we also offer an efficiency explanation for food scares from a normative point of view in our model protection of geographical indications increases and mandatory traceability decreases welfare and incentives to provide quality without taking into account direct implementation costs copyright 2012 oxford university press

the determinants of individual unemployment durations in an era of high unemployment this paper presents the results of an econometric analysis of the conditional probability of leaving unemployment for two male inflow cohorts entering unemployment at very different points in time 1978 and 1987 the effect of income while unemployed is found to be much weaker for the i987 cohort an elasticity of o i compared with 0 4 and is only found to be significant for teenagers and in the first three months of a spell demand constraints measured by the local unemployment rate are found to have a stronger negative effect on the exit probability for the i987 cohort than in 1978 the i 980s witnessed continual high levels of unemployment in britain and the movement of unemployment up the economic and political agenda unemployment results in major output and income losses and is the cause of much misery to those involved the nation is poorer because of it for both reasons it is therefore important to understand the process that generates a given level of unemployment this process can be considered in terms of two key probabilities the probability of an individual entering unemployment and the probability of an unemployed individual leaving unemployment to take up a job or for other reasons these probabilities will vary with the characteristics of the individual concerned and over time changes in the aggregate unemployment rate can under certain assumptions be decomposed into changes in the inflow rate into unemployment and changes in the steady

near unit root small open economies abstract the marginal utility of wealth in incomplete markets small open economy models follows a unit root process i study the nonlinear properties of devices often used to remove the unit root and i find that they generate different dynamics when matching emerging markets models with endogenous discount factors reinforce consumption response to shocks and increase the countercyclicality of the trade balance to output ratio conversely models with debt frictions ameliorate the responses of consumption and trade balance hence to generate dynamics similar to those in emerging economies the debt frictions need to be small inducing a near unit root behavior in their euler equations this difference across models is hidden when matching developed economies because of consumption smoothing and the mild countercyclicality of the trade balance

sanctions in networks abstract in this paper we contribute to the sender target models of sanctions by explicitly incorporating the linkages social political or economic that bind the sender and target to other agents given any network model and architecture we draw attention to two factors that play a key role in determining the efficacy of sanctions in reducing the frequency of violations these are respectively strategic complementaritiesbetween the sanctioning action deleting link with target and number of direct links of the sender and the externalities imposed on the sender by third parties we examine the role played by these factors both in the short run when links can only be deleted and the long run when links can also be added as well as when sanctions are unilateral the sender can only delete own links or multilateral the sender can impose on common allies to sever links to the target our analysis allows an active role to the target to build an opposing coalition to deflect sanctions and to third parties to engage in sanction busting it also extends to multiple senders and targets existence of interest groups within sender and target with dissimilar objectives and signed networks allowing both antagonistic and cordial bilateral relationships

the spirit of capitalism and stock market prices in existing theory wealth is no more valuable than its implied consumption rewards in reality investors acquire wealth not just for its implied consumption but for the resulting social status max m weber 1958 refers to this desire for wealth as the spirit of capitalism the authors examine both analytically and empirically implications of weber s hypothesis for consumption savings and stock prices when investors care about relative social status propensity to consume and risk taking behavior will depend on social standards and stock prices will be volatile the spirit of capitalism seems to be a driving force behind stock market volatility and economic growth copyright 1996 by american economic association

rationalizability learning and equilibrium in games with strategic complementarities we study a rich class of noncooperative games that includes models of oligopoly competition macroeconomic coordination failures arms races bank runs technology adoption and diffusion r d competition pretrial bargaining coordination in teams and many others for all these games the sets of pure strategy nash equilibria correlated equilibria and rationalizable strategies have identical bounds also for a class of models of dynamic adaptive choice behavior that encompasses both best response dynamics and bayesian learning the players choices lie eventually within the same bounds these bounds are shown to vary monotonically with certain exogenous parameters we study the class of noncooperative supermodular games introduced by topkis 1979 and further analyzed by vives 1985 1989 who also pointed out the importance of these games in industrial economics supermodular games are games in which each player s strategy set is partially ordered the marginal returns to increasing one s strategy rise with increases in the competitors strategies so that the game exhibits strategic complementarity 2 and if a player s strategies are multidimensional marginal returns to any one com ponent of the player s strategy rise with increases in the other components this class turns out to encompass many of the most important economic applications of noncooperative game theory in macroeconomics diamond s 1982 search model and bryant s 1983 1984 rational expectations models can be represented as supermodular games in each of these models more activity by some members of the economy raises the returns to increased levels of activity by others in oligopoly theory some models of bertrand oligopoly with differentiated products qualify as supermodu lar games in these games when a firm s competitors raise their prices the marginal profitability of the firm s own price increase rises a similar structure is present in games of new technology adoption such as those of dybvig and spatt 1983 farrell and saloner 1986 and katz and shapiro 1986 when more users hook into a communication system or more manufacturers adopt an interface standard the marginal return to others of doing the same often rises similarly in some specifications of the bank runs model introduced by diamond and dybvig 1983 when more depositors withdraw their funds from a bank it is more worthwhile for other depositors to do the same in the warrant exercise

aggregate volatility and international dynamics the role of credit supply abstract changes in country specific aggregate volatility are positively correlated with the current account but negatively correlated with investment output and credit flows an international real business cycle model with time varying aggregate uncertainty through a precautionary savings channel can account for the positive correlation but implies counterfactual comovements for the other variables adding a credit supply channel with default and lenders exposed to aggregate risk allows the model to match all the facts higher volatility contracts credit supply and lowers investment and output the current account turns to a surplus because savings increase but also because investment collapses

how do financial resources affect the timing of retirement after a job separation this study examines working people between the ages of 50 and 70 years old and the conditions that lead them to decide to retire or not after they experience a job separation based on data from the survey of income and program participation the author finds that among individuals whose jobless spells end in retirement most decide to retire within a year after separation the availability of resources such as social security retirement benefits high net worth and income from defined benefit pensions appear to encourage more rapid labor force exit and retirement rather than supporting job seekers during a long search perhaps surprisingly no correlation between retirement and the unemployment rate occurs but unemployment insurance benefits do delay retirement these results suggest little tolerance for long job searches regardless of labor market prospects and indicate that those who can afford to retire will do so rather quickly

the more things change the more they stay the same the safety net and poverty in the great recession much attention has been given to the large increases in safety net spending during the great recession we examine the relationship between poverty the safety net and business cycles historically and test whether there has been a significant change in this relationship we find that post welfare reform temporary assistance for needy families did not respond during the great recession and extreme poverty is more cyclical than in prior recessions food stamps and unemployment insurance are providing more protection or no less protection in the great recession and there is some evidence of less cyclicality for 100 poverty

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

failure of gradualism under imperfect monitoring abstract we consider a two player prisoner s dilemma type game with continuous actions where players choose how much to contribute to a public project this game is played infinitely many times and actions are irreversible players cannot decrease their actions over time while it is strictly dominant for players not to contribute in the stage game some strictly positive level of contribution is pareto optimal it is known that when players perfectly observe each other s actions cooperation can be achieved through gradual increases in contribution levels i show that introducing an arbitrarily small amount of smooth noise in the monitoring makes cooperation impossible and players play the static nash equilibrium of the stage game forever

the beveridge curve a survey important progress has been made in economists understanding of the beveridge curve from its measurement to its expression in canonical labor market models yet enduring puzzles remain chief among these are the empirical role of vacancies in the recruitment process the amplitude comovement and persistence of cyclical unemployment vacancy dynamics and the sources of lateral shifts in the beveridge curve the synthesis of these themes identifies several priorities for ongoing research including the role of entry costs into vacancy creation in shaping beveridge dynamics the cyclicality of search intensity both off and on the job and its relation to participation and job to job transitions the theory and measurement of mismatch and the sources of hysteresis in unemployment flows