The purpose of the paper is to present a tractable model of an old topic which is becoming more important in macroeconomics: the link between financial structure and economic activity.

I study the consequences of heterogeneity of skills for the design of an optimal unemployment insurance, using a principal-agent set-up with a risk neutral insurer and infinitely lived risk averse agents. Agents, who are characterised by different productivities or skills, are employed by firms...

Ever since Adam Smith, share contracts have been condemned for their lack of incentives. Sharecropping tenants face incentives to undersupply productive inputs since they receive only a fraction of the marginal revenue. The empirical literature reports that lands under sharecropping are less...

This paper empirically investigates the extent of investor moral hazard associated with IMF bailouts by analyzing the responses of sovereign bond spreads to the changes in the perceived probability of IMF bailouts of countries undergoing financial crisis. We do not find strong evidence that the...

Tournaments are well known to be vulnerable to collusion as shown by the impossibility theorem in Ishiguro (2004), which asserts that efficient effort levels are impossible to be implemented through a collusion-proof contract. However, we argue that this impossibility is a product of simple...

We develop a moral hazard model with auditing where both the principal and the agent can influence the probability that the true state of nature is verified. This setting is widely applicable for situations where fraudulent reporting with costly state verification takes place. However, we use...

This paper analyses a model of private unemployment insurance under limited commitment and a model of public unemployment insurance subject to moral hazard in an economy with a continuum of agents and an infinite time horizon. The dynamic and steady-state properties of the private unemployment...

This paper investigates multi-item moral hazard with auditing contests. Although the presented model is widely applicable, we choose tax evasion as an exemplary application. We introduce a tax-evasion model where tax authority and taxpayer invest in detection and concealment. The taxpayers have...

The paper considers a modelin which limited liability causes an asset substitution problem for banks. The problem can at times become so severe that the current regulatory framework – based on a combination of effectively full deposit insurance, minimum capital requirements and prudential...

This paper provides a step-by-step hands on introduction to the techniques used in setting up and solving moral hazard problems with lotteries using Matlab. It uses a linear programming approach due to its relative simplicity and the high reliability of the available optimization algorithms.