Over the last three decades there has been a dramatic increase in the size of the financial sector and in the compensation of financial executives. This increase has been associated with greater risk-taking and the use of more complex financial instruments. Parallel to this trend, the...

In monetary unions, monetary policy is typically made by delegates of the member countries. This procedure raises the possibility of strategic delegation- that countries may choose the types of delegates to influence outcomes in their favor. We show that without commitment in monetary policy,...

We analyze a monetary model with flexible labor supply, cash-inadvance constraints and seigniorage-financed government deficits. If the intertemporal elasticity of substitution of labor is greater than one, there are two steady states, one determinate and the other indeterminate. If the...

We study the effects of nominal debt on the optimal sequential choice of monetary policy. When the stock of debt is nominal, the incentive to generate unanticipated inflation increases the cost of the outstanding debt even if no unanticipated inflation episodes occur in equilibrium. Without full...

We obtain a recursive formulation for a general class of contracting problems involving incentive constraints. These constraints make the corresponding maximization sup problems non-recursive. Our approach consists of studying a recursive Lagrangian. Under standard general conditions, there is a...

the problem of general vs. firm-specific human capital investments.

The interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money is studied. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a...