In this paper, we extend the usual models of irreversible investment under uncertainty by introducing the stock of public capital as an input for the private sector. Public investment takes place in a stochastic environment. Public capital then increases the productivity of private capital which...

The Euro Area is characterized by little variation in unemployment and strongly procyclical labor productivity. We capture both characteristics in a New Keynesian business cycle model with labor search frictions, where labor can vary along three margins: employment, hours, and effort. We...

Labor productivity is more procyclical in OECD countries with lower employment volatility. To capture this new stylized fact, we propose a business cycle model with employment adjustment costs, variable hours and labor effort. We show that, in our model with variable effort, greater labor market...

State capacity is optimized when public institutions are staffed by individuals with public-service motivation. However, when motivated agents value the collective reputation of their place of employment, steady-state equilibria with both high and low aggregate motivation (reputation) in the...

Recent empirical studies suggest that poor public sector performance in developing nations is due in part to the difficultly of selecting workers whose motivation is aligned with the mission of the institution -- in direct contrast to evidence from developed nations, public sector workers tend...

We discuss political economy mechanisms which can explain the resource curse, in which an increase in the size of resource rents causes a decrease in the economy's total value added. We identify a number of channels through which resource rents will alter the incentives of a political leader....

Several studies have analyzed the trade and output effects of the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union, but our paper is the first attempt to study its welfare effects. We measure the welfare effect of TTIP as the percentage of...

We characterize optimal monetary policy in a New Keynesian search-and-matching model where multiple-worker firms satisfy demand in the short run by adjusting hours per worker. Imperfect product market competition and search frictions reduce steady state hours per worker below the efficient...