This paper analyses the possibility and the consequences of rational bubbles in a dynamic economy where financially constrained firms demand and supply liquidity. Bubbles are more likely to emerge, the scarcer the supply of outside liquidity and the more limited the pledgeability of corporate...

We study efficient non-linear taxation of labour and capital in a dynamic Mirrleesian model incorporating political economy constraints. Policies are chosen sequentially over time, without commitment. Our main result is that the marginal tax on capital income is progressive, in the sense that...

We show that even when the exchange rate cannot be devalued, a small set of conventional fiscal instruments can robustly replicate the real allocations attained under a nominal exchange rate devaluation in a dynamic New Keynesian open economy environment. We perform the analysis under...

This paper studies a Diamond-Dybvig model of providing insurance against unobservable liquidity shocks in the presence of unobservable trades. We show that competitive equilibria are inefficient. A social planner finds it beneficial to introduce a wedge between the interest rate implicit in...

This paper studies a Diamond-Dybvig model of providing insurance against unobservable liquidity shocks in the presence of unobservable trades. We show that competitive equilibria are inefficient. A social planner finds it beneficial to introduce a wedge between the interest rate implicit in...

We consider a dynamic Mirrlees economy in a life-cycle context and study the optimal insurance arrangement. Individual productivity evolves as a Markov process and is private information. We use a first-order approach in discrete and continuous time and obtain novel theoretical and numerical...

Many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns. This paper models career concerns through agents trying to manipulate the market assessment of their future productivity. The information flow from current...

The paper is a first attempt at modeling the idea of group reputation as an aggregate of individual reputations. A member's current incentives are affected by his past behavior and, because his track record is observed only with noise, by the group's past behavior as well. The paper thus studies...

As was shown by M. Dewatripont (1986), optimal long-term contracts under asymmetric information are generally not time-consistent. This paper fully characterizes the equilibrium of a two-period procurement model with commitment and renegotiation. It also analyzes whether renegotiated long-term...

Consider a long-term relationship between a seller and buyer whose valuation (for a durable good) is private. As trade progresses, the valuation will be partially revealed and it may be possible for the parties to commit ex ante not to take advantage of this. The authors analyze this first by...