The dynamics of self-confidence are modelled in an environment where rational individuals optimally choose education and occupations with the aim to acquire productive skills while learning about ability. It is shown how the presence of uninformative options can trap individuals below their...

Bailing out banks requires overcoming debt overhang as well as dealing with adverse selection with respect to the quality of banks' balance sheets, in terms of heterogeneity in both the likelihood and extent of their potential shortfalls, of future asset values vis-à-vis contractual debt...

We analyze the relationship between firm-level innovation activities and firms’ propensity to start exporting for firms in a small open economy. We measure innovation by innovative effort (R&D) as well as by innovative output (product and process innovation). After carefully correcting for...

Why do low-skilled workers choose to work in a foreign economy and what determines their wages? The Paper empirically implements the Roy self-selection model to study this question. It does so using a unique dataset on Palestinian workers working locally and in the Israeli economy. The data...

Productivity is high in cities partly because the urban environment acts as a self-selection mechanism. If workers have imperfect information about the quality of workers with whom they match and matches take place within cities, then high-ability workers will choose to live and work in...

Destination countries have been resorting to selective immigration policies to improve migrants' quality. We propose a model that analyzes the effects of selective immigration policies on migrants' quality, measured by their wages at destination. Screening potential migrants on the basis of...

In this paper we investigate how heterogeneous agents choose among tournaments with different prizes. We show that if the number of agents is sufficiently small, multiple equilibria can arise. Depending on how the prize money is split over the tournaments, these may include, for example, a...

Motivated the European debt crisis, we construct a tractable theory of sovereign debt and structural reforms under limited commitment. The government of a sovereign country which has fallen into a recession of an uncertain duration issues one-period debt and can renege on its obligations by...

We analyse the impact of market structure on the probability of banking failure when banks’ loan portfolios are subject to aggregate uncertainty. In our model borrowers are subject to a moral hazard problem, which induces banks to choose between two second-best alternative devices: costly...

This Paper studies a particular kind of gaming response to explicit incentives in a large government organization. The gaming responses we consider occur when agents strategically report their performance outcomes to maximize their awards. An important contribution of this work is to examine...