This paper analyzes the effect of the removal of government guarantees on bank risk taking. We exploit the removal of guarantees for German Landesbanken which results in lower credit ratings, higher funding costs, and a loss in franchise value. This removal was announced in 2001, but...

We show that the impact of government bailouts (liquidity injections) on a representative bank's risk taking depends on the level of systematic risk of its loans portfolio. In a model where bank's output follows a geometric Brownian motion and the government guarantees bank's liabilities, we...

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher...

Given that credit and insurance markets are imperfect, and given also that intra-household transfers, and much of the work a child does, are private information, the second-best policy uses a combination of need and merit based education awards, together with a mix of taxes on parental income,...

This paper investigates relational incentive contracts with continuous, privately-observed agent types that are persistent over time. With fixed agent types, full separation is not possible when continuation equilibrium payoffs following revelation are on the Pareto frontier of attainable...

We study an important mechanism underlying employee referrals into informal low skilled jobs in developing countries. Employers can exploit social preferences between employee referees and potential workers to improve discipline. The profitability of using referrals increases with referee stakes...

Empirical literature on moral hazard focuses exclusively on the direct impact of asymmetric information on market outcomes, thus ignoring possible repercussions. We present a field experiment in which we consider a phenomenon that we call second-degree moral hazard – the tendency of the supply...

A central question for pension design is how benefits should vary with the age of retirement beyond early eligibility age. It is often argued that in order to be neutral with respect to individual retirement decisions benefits should be actuarially fair, that is, the present value of additional...

We propose a model based on competitive markets in order to analyse an economy with several principals and agents. We model the principal-agent economy as a two-sided matching game and characterise the set of stable outcomes of this principal-agent matching market. A simple mechanism to...