We are interested in the macroeconomic implications of the separation of ownership and control. An alternative decentralized interpretation of the stochastic growth model is proposed, one where shareholders hire a self-interested manager who is in charge of the firm’s hiring and investment...

The objective of this paper is to provide, in the context of a dynamic general equilibrium model, an answer to the following five questions: 1) To what extent does an economy subject to regular variations in labour productivity growth differ from one where labour productivity is constant? 2)...

We reexamine the issue of executive compensation within a general equilibrium production context. Intertemporal optimality places strong restrictions on the form of a representative manager's compensation contract, restrictions that appear to be incompatible with the fact that the bulk of many...

We study the dynamic general equilibrium of an economy where risk averse shareholders delegate the management of the firm to risk averse managers. The optimal contract has two main components: an incentive component corresponding to a non-tradable equity position and a variable 'salary'...

The objective of this Paper is to propose a number of alternative decentralized interpretations of representative agent style stochastic growth economies and to explore their implications for the generality of this model construct. Under our first interpretation, firms exist forever and...

We discuss the extent to which the expectation of a rare event, not present in the usual post-war sample data, but not rationally excludable from the set of possibilities – the peso problem – can affect the behaviour of rational agents and the characteristics of market equilibrium. To that...

The missing wage rigidity in general equilibrium models of efficiency wages is an artifact of the external wage reference perspective conventionally adopted by the literature. Efficiency wage models based on an internal wage reference perspective are capable of generating strong wage rigidity....

We develop a reciprocity-based model of wage determination and incorporate it into a modern dynamic general equilibrium framework. We estimate the model and find that, among potential determinants of wage policy, rent-sharing (between workers and firms) and a measure of wage entitlement are...

We build a New Keynesian model of the business cycle with sticky prices and real wage rigidities motivated by efficiency wages of the gift exchange variety. Compared to a standard sticky price model, our Fair Wage model provides an explanation for structural employment and generates more...

We develop and analyse a structural model of efficiency wages founded on reciprocity. Workers are assumed to face an explicit trade-off between the disutility of providing effort and the psychological benefit of reciprocating the gift of a wage offer above some reference level. The model...