We examine the effect of relaxing a binding borrowing constraint for a recipient country on the amount of foreign aid, in a two-country, two-period, trade-theoretic framework. The relaxation unambiguously reduces the flow of foreign aid.

This paper shows that grid-based numerical solutions to models with incomplete markets and aggregate uncertainty are sensitive to the number and placement of grid points in the aggregate asset holdings direction. Higher moments of the cross-sectional distribution of asset holdings can be...

A simple Monte Carlo calibration approach is implemented in a GE model with uninsurable employment risk to quantitatively study the optimal replacement rate of a public unemployment insurance (UI) scheme. The optimal UI sampling distribution is found to be bimodal.

Financing government spending through lump sum taxes does not distort capital when markets are complete but tends to increase precautionary savings under market incompleteness. Using flat consumption taxes instead leaves precautionary savings unaffected, provided certain conditions on utility...

Pension systems often entail some compulsory saving over which individuals have some degree of choice in terms of the pension plan in which to invest. We analyse whether the choice between alternative plans is affected by the presence of liquidity constraints during working life and we prove...

In a general equilibrium model with at least three goods, a perfectly price-discriminating monopoly (PDM) selects an inefficient production plan even if consumers are homogenous, their preferences are representable by quasi-linear utilities, and their characteristics are known to the monopolist....

The government wants two tasks to be performed. In each task, unobservable effort can be exerted by a wealth-constrained private contractor. If the government faces no binding budget constraints, it is optimal to bundle the tasks. The contractor in charge of both tasks then gets a bonus payment...

I study the trade-off between private and verifiable interim performance evaluations under uncertainty. More uncertainty leads to higher agency costs if the interim evaluation is public and verifiable but lower agency costs if the interim evaluation is private and unverifiable.

We revisit job design with sequential tasks and outcome externalities from a different perspective, extending Schmitz (2013a). When two sequential tasks need to be performed by wealth-constrained agents, the principal can hire only one agent or two different agents. When there exists an outcome...

This paper considers an agency model in which the agent can update the principal’s belief before the contract is offered. We identify that the agent who has a bad potential to perform the task has a small chance to receive information rent, but if he receives it, he receives a large amount....