This paper extends the optimal labor contracts literature to consider an environment with both real and nominal shocks. In an overlapping generations model, we compare alternative means of trading labor services: spot markets, fixed nominal wage contracts and price-contingent contracts. The...

This paper considers the general structure of self-selection models. By imposing conditions which permit the ordering of agents by their preferences, we provide a characterization of the distortions inherent in the sorting process. We also discuss extensions of the basic model such as randomization.

We propose a Walrasian explanation for the existence of fixed prices, i.e., of trades in which either the price or the quantity exchanged do not reflect all publicly available information. Such trades result in a rigid price system that facilitates the sharing of social risks; they may also...

This paper considers a model in which all exchange is mediated by contracts. The analysis explores the indexation of labor and commodities contracts to observable variations in government spending financed by money creation. In one of the many equilibria, prices and nominal wages are shown to be...

This paper focuses on the importance of strategic complementarity in agents' payoff functions as a basis for macroeconomic coordination failures. We first analyze an abstract game and find that inefficient equilibria and a multiplier process may arise in the presence of strategic...

This essay is concerned with a monopolist's incentives to provide a high quality goods when some of its customers cannot observe quality prior to purchase. We show that if all buyers have the same tastes for quality, the monopolist will not try to take advantage of the poorly informed. When...

This paper explores a model of warranties in which moral hazard problems play a key role. The goal is to understand the important characteristics of warranties including their provision of incomplete insurance and the relationship between product quality and coverage. We analyze a model in which...

This paper considers non-contingent trades through either forward markets or simple contracts. The point of the inquiry is to understand the costs and benefits of trades of this nature. We focus on the tradeoff between insurance (a benefit) and the loss of flexibility in decisions (a cost) as...