tapping the supercomputer under your desk solving dynamic equilibrium models with graphics processors this paper shows how to build algorithms that use graphics processing units gpus installed in most modern computers to solve dynamic equilibrium models in economics in particular we rely on the compute unified device architecture cuda of nvidia gpus we illustrate the power of the approach by solving a simple real business cycle model with value function iteration we document improvements in speed of around 200 times and suggest that even further gains are likely

amortization requirements and household indebtedness an application to swedish style mortgages abstract since the mid 1990s many oecd countries have experienced a substantial increase in household indebtedness sweden in particular has seen indebtedness rise from 90 of disposable income in 1995 to 179 in 2015 the swedish financial supervisory authority fsa has identified mortgage amortization requirements as a potential instrument for reducing indebtedness and has drafted guidelines that will intensify the rate and duration of amortization in this paper i characterize swedish style mortgage contracts which differ substantially from u s style contracts i then evaluate the policy changes in an incomplete markets model with three types of debt and a novel mortgage contract specification that is calibrated to match swedish micro and macro data i find that intensifying the rate and duration of amortization is largely ineffective at reducing indebtedness in a realistically calibrated model in the absence of tight restrictions on the maximum debt service to income ratio or implausibly large refinancing costs the policy impact is small in aggregate over the lifecycle and across employment statuses

a hardware approach to value function iteration abstract this paper proposes a novel approach for the computation of dynamic stochastic equilibrium models we design an fpga specialized in the computation of a bellman equation via value function iteration vfi our hardware approach exhibits significant speed gains vis a vis gpu based data parallelization techniques the speed gains arise from two layers of parallelism accessible to hardware developers instruction level and pipeline parallelism at the logical resources level by and large the paper documents significant computational speed gains from hardware specialization so far unexplored by the macroeconomic literature

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

uncertainty and incentives empirical work testing for a trade off between risk and incentives has had at best mixed success this article provides two simple reasons associated with subjectivity of performance appraisals why we might not expect to see any negative relationship both reasons relate to empirically observed problems associated with monitoring i supervisors sometimes bias their evaluations based on their personal feelings toward their subordinates and ii supervisors will sometimes offer evaluations that reduce their costs these aspects of monitoring are ignored in the standard model and can reverse the usual negative trade off between risk and incentives

technological heterogeneity and corporate investment we propose an importance sampling procedure to improve the computational performance of the simulated method of moments smm for the estimation of structural models with fixed parameter heterogeneity the main advantage of the procedure is that it does not require to simulate observations every time that the structural parameters change during the minimization of the smm criterion function we illustrate the use of our method by estimating a neoclassical model of investment for a sample of us manufacturing companies allowing the technological parameters to vary across firms

comparing solution methods for dynamic equilibrium economies this paper compares solution methods for dynamic equilibrium economies the authors compute and simulate the stochastic neoclassical growth model with leisure choice using undetermined coefficients in levels and in logs finite elements chebyshev polynomials second and fifth order perturbations and value function iteration for several calibrations the authors document the performance of the methods in terms of computing time implementation complexity and accuracy and they present some conclusions about their preferred approaches based on the reported evidence

renegotiation and information revelation over time the case of optimal labor contracts the paper analyzes the issue of commitment in grossman and hart s model of optimal labor contracts under asymmetric information about firm profitability we extend their framework by allowing employment to vary over time at equidistant intervals when both parties can precommit ex ante not to renegotiate the contract this replicates the grossman hart outcome each subperiod when precommitment is not possible information revealed through the contract can create pareto improving renegotiation opportunities and the issue of optimal information revelation arises the paper analyzes the impact of ex post pareto improving renegotiations on the optimal contract

relational incentive contracts standard incentive theory models provide a rich framework for studying informational problems but assume that contracts can be perfectly enforced this paper studies the design of self enforced relational contracts i show that optimal contracts often can take a simple stationary form but that self enforcement restricts promised compensation and affects incentive provision with hidden information it may be optimal for an agent to supply the same inefficient effort regardless of cost conditions with moral hazard optimal contracts involve just two levels of compensation this is true even if performance measures are subjective in which case optimal contracts terminate following poor performance jel c73 d82 l14

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

a fast estimation procedure for discrete choice random coefficients demand model we document speed up gains of graphical processing unit gpu computing over central processing unit cpu for the estimation of discrete choice random coefficient demand model when we use a moderate sized gpu the computation is six to twenty times faster where the smallest speed up factor six is obtained from a comparison with the parallel computing over sixteen cpu cores

the provision of incentives in firms i ncentives are the essence of economics despite many wide ranging claims about their supposed importance there has been little empirical assessment of incentive provision for workers the purpose of this paper is to critically overview existing work on the provision of incentives since the interests of workers and their employers are not always aligned a large theoretical literature has emphasized how firms design compensation contracts to induce employees to operate in the firm s interest this literature has reached into many areas of compensation and has pointed to a multitude of different mechanisms that can be used to induce workers to act in the interests of their employers these include piece rates options discretionary bonuses promotions profit sharing efficiency wages deferred compensation and so on my objective here is to evaluate this literature in the light of a growing empirical literature on compensation where possible i will address the literature from two perspectives first an underlying assumption of this literature is that individuals respond to contracts that reward performance accordingly i consider whether agents behave in this way and whether these responses are always in the firm s interest second i address whether firms write contracts with these responses in mind in other words do contracts look like the predictions of the theory incentives are provided to workers

fiscal restraints and voter welfare this paper explores the logic of fiscal restraints in a political agency model with both moral hazard and adverse selection the role of the political process is both to discipline incumbents who may act against the public interest and to sort in those politicians who are most likely act in voters interests we use the model to examine the optimality of inefficient taxation limits on the size of government increasing transparency and yardstick competition some conclusions are surprising for example we show that some forms of fiscal restraint can only be desirable when incumbents are sufficiently likely to be benevolent

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

incumbent performance and electoral control in the pure theory of electoral competition citizens compare the platforms of the candidates and vote for the one whose platform is preferred candidate strategies are identified with promises about future performance in office models of this sort have been developed in both static mckelvey 1975 and dynamic kramer 1977 i settings and all appear to have the property that if the set of alternatives is large enough in some sense equilibrium platforms rarely exist but these models have another feature that is quite as disturbing as their instability in the static setting discussed by mckelvey little attention is paid to the possibility that once in office the politician s preferences may diverge from those of his constituents and that he may therefore choose policies at variance from his platform instead it is simply assumed that promises will be kept whether or not such behavior is congruent with the interest of the officeholder it is sometimes argued that an enforcement mechanism may exist to discipline politicians for failing to keep promises but without a specification of the mechanism it is not obvious that it would be in the interests of the

the tenuous trade off between risk and incentives empirical work testing for a negative trade off between risk and incentives has not had much success the data suggest a positive relationship between measures of uncertainty and incentives rather than the posited negative trade off i argue that the existing literature fails to account for an important effect of uncertainty on incentives through the allocation of responsibility to employees when workers operate in certain settings firms are content to assign tasks to workers and monitor their inputs by contrast when the situation is more uncertain they delegate responsibility to workers but to constrain their discretion base compensation on observed output

benchmarking machine learning software and hardware for quantitative economics abstract we investigate the performance of machine learning software and hardware for quantitative economics we show that the use of machine learning software and hardware can significantly reduce computational time in compute intensive tasks using a sovereign default model and the least squares monte carlo option pricing algorithm as benchmarks we show that specialized hardware and software speed up calculations by up to four orders of magnitude when compared to programs written in popular high level programming languages such as matlab julia python numpy and r and high performing low level languages such as c

endogenous political competition and political accountability we contribute to the debate over the effectiveness of elections in motivating incumbents to perform well we show that with endogenous political competition the effectiveness of democracy in disciplining officials can be largely diminished

incentives equality and contract renegotiations theory and evidence in the chinese banking industry renegotiation plays an important role in contract theory but the empirical study of renegotiation is almost non existent in the literature using a unique dataset from the chinese banking industry we find that the large majority of managerial incentive contracts are renegotiated after performances are realized we develop a model of contract renegotiation where supervisors and managers sign incentive contracts and then renegotiate them in the unique equilibrium of the model incentive contracts are almost always renegotiated ex post even though renegotiation is fully anticipated incentive contracts affect performance the predictions of the model find strong support from our empirical results

implicit contracts incentive compatibility and involuntary unemployment this paper considers the enforceability of employment contracts when employees performance cannot be verified in court so that piece rate contracts are not legally enforceable part i shows that there exists a variety of self enforcing implicit contracts modelled as perfect equilibria in a repeated game and characterizes all the wage and performance outcomes that can be implemented implementation requires a strictly positive surplus from employment the form of the contract depending on how this surplus is divided between firm and employee piece rate contracts and contracts with an informally agreed bonus can be made self enforcing but the use of severance pay and bonding does not extend the set of implementable allocations the resulting contracts resemble actual labor contracts more than do the contracts in standard principal agent models part ii analyses market equilibrium with these contracts also modelled as perfect equilibria in a repeated game and shows that many such equilibria exist unfilled vacancies and unemployed workers can co exist despite the existence of contracts that are potentially mutually beneficial for those jobs that are filled any division of the potential surplus is possible so that the market can have at the same time involuntary unemployment and vacancies that are unfilled despite filled jobs earning positive profits as a criterion for selecting equilibria a notion of renegotiation proofness is applied then either all workers are employed or all jobs filled but any division of the potential surplus is still possible the paper explores what further restrictions on beliefs give rise to a walrasian outcome in which all the potential surplus goes to the short side of the market and to an efficiency wage type outcome in which the potential surplus goes to the long side