A search-theoretic model of the retail market for illegal drugs is developed. Trade occurs in bilateral, potentially long-lived matches between sellers and buyers. Buyers incur search costs when experimenting with a new seller. Moral hazard is present because buyers learn purity only after a...

Vertical rebates are prominently used across a wide range of industries. These con- tracts may induce greater retail effort, but may also prompt retailers to drop competing products. We study these offsetting efficiency and foreclosure effects empirically, using data from one retailer. Using a...

This paper presents new evidence on why unemployment insurance (UI) benefits affect search behavior and develops a simple method of calculating the welfare gains from UI using this evidence. I show that 60 percent of the increase in unemployment durations caused by UI benefits is due to a...

Government relief is offered for a wide range of risks - - natural disaster, economic dislocation, sickness and injury. This paper explores the effect of such relief on incentives and the allocation of risk in a model with private insurance. It is shown that government relief is inefficient,...

A significant source of risk arises from uncertainty concerning future government policy. Government action - - tax reform, deregulation, judicial decisions, budgetary shifts - - produces gains and losses for those who invested under preexisting rules. The effects of government relief - -...

We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation...

Theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard. However, previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care. We empirically...

It is well known that unemployment benefits raise unemployment durations. This result has traditionally been interpreted as a substitution effect caused by a distortion in the price of leisure relative to consumption, leading to moral hazard. This paper questions this interpretation by showing...

The hypothesis that Sudden Stops to capital inflows in emerging economies may be caused by global capital market frictions, such as collateral constraints and trading costs, suggests that Sudden Stops could be prevented by offering price guarantees on the emerging-markets asset class. Providing...