Severance pay, a fixed-sum payment to workers at job separation, has been the focus of intense policy concern for the last several decades, but much of this concern is unearned. The design of the ideal separation package is outlined and severance pay emerges as a natural component of job...

If managers are risk-averse and compensation schemes are not directly linked to shareholder wealth, incentives to allocate effort to manage effects of relative and macroeconomic shocks may be distorted. In this paper we develop a simple model to identify factors that determine the optimal...

We derive the shape of optimal unemployment insurance (UI) contracts when agents can exert search effort but face different search costs and have private information about their type. We derive a recursive solution of our dynamic adverse selection problem with repeated moral hazard. Conditions...

This paper analyzes a labor market, where firms offer workers incentive contracts and make decisions about irreversible capital investments. The state authority regulates the institutional framework by choosing the level of unemployment benefits and the workers' bargaining power. Our results...

Severance pay, a fixed-sum payment to workers at job separation, has been the focus of intense policy concern for the last several decades, but much of this concern is unearned. The design of the ideal separation package is outlined and severance pay emerges as a natural component of job...

All OECD countries have either legally mandated severance pay or compensations imposed by industry-level bargaining in case of employer initiated job separations. According to the extensive literature on Employment Protection Legislation such transfers are either ineffective or highly...

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher...

Several European countries have reformed their labor market institutions. Incentive effects of unemployment benefits have been an important aspect of these reforms. We analyze this issue in a principal-agent model, focusing on unemployment levels and labor productivity. In our model, a higher...

We derive the shape of optimal unemployment insurance (UI) contracts when agents can exert search effort but face different search costs and have private information about their type. We derive a recursive solution of our dynamic adverse selection problem with repeated moral hazard. Conditions...

This paper examines the optimal compensation scheme, job design, and severance policy for a team using a model of repeated moral hazard. In the optimal contract, the agent may be paid to quit after a poor performance. We show that a generous severance policy facilitates the adoption of team...