Why would two risk-average agents write a nominal contract? A possible answer is that for an agent who is subject to risks caused by price variability, a nominal contract that offers hedging against these risks may be optimal. This paper argues that nominal contracts may have a role in...

A General Equilibrium model of investment is constructed in which the pay-offs of firms depend on each other''s actions. It is shown that when these actions are unobservable but aggregate output is in the information set of the agents; it acts as a signal. The implication is that output will...

This paper considers a model in which the unemployed have to incur a cost to maintain their skills. If whether they have done so is not observable, the economy has multiple equilibrium supported by self-fulfilling beliefs on the part of the employers. There is a unique steady state equilibrium...

This paper presents a one-sided incomplete (asymmetric) information bargaining game in a dynamic general equilibrium framework. The model predicts business cycle movements in the economy with persistence mechanism arising from asymmetric information and search. The employment level is...

Most managers enjoy considerable discretion and protection from possible interventions which enables them to look after their own interests. This is often attributed to the dispersion of shareholders and regulations that deter effective outside interventions. This paper presents a model that has...

This paper shows that search in the labor market has important effects on accumulation decisions. In a labor market characterized by search, employment contracts are naturally incomplete and this creates a wedge between the rates of return and marginal products of both human and physical...

In the presence of labor market imperfections, workers do not receive their full marginal product and the skill level of the workforce becomes a public good from which all firms benefit. As a result, the adoption of an innovation that increases the non-firm specific human capital of a worker...

This paper develops a framework to analyze the relationship between the diffusion of new technologies and the decentralization decisions of firms. Centralized control relies on the information of the principal, which we equate with publicly available information. Decentralized control, on the...

A competitive business cycle model is developed in which internal increasing returns translate a white noise random shock into temporarily agglomerated economic activity. Te qualitative nature of the economy varies over the cycle due to changes in the underlying economic structure, giving rise...

This paper introduces a labor force participation choice into a labor marketmatching model embedded in a dynamic stochastic general equilibrium set-upwith production and savings. The participation choice is modelled as a tradeoffbetween forgoing the expected benefits of being search active and...