In this chapter we study dynamic incentive models in which risk sharing is endogenously limited by the presence of informational or enforcement frictions. We comprehensively overview one of the most important tools for the analysis such problems—the theory of recursive contracts. Recursive...

We study how barriers to business start-up affect the investment in knowledge capital when contracts are not enforceable. Barriers to business start-up lower the competition for knowledge capital and, in absence of commitment, reduce the incentive to accumulate knowledge. As a result, countries...

Two results characterize previous studies of optimal capital income taxation: (i) In order to avoid distorting capital accumulation incentives the ex ante capital tax rate should be set to zero in the long run and ii) by varying the ex post capital tax rate governments may be able to insulate...

This paper shows that optimal unemployment insurance contracts are age-dependent. Older workers have only a few years left on the labor market prior to retirement. This short horizon implies a more digressive replacement ratio. However, there is a sufficiently short distance to retirement for...

In an ongoing organization, such as a large law partnership, employees are motivated not only by current rewards but also by the prospect of promotion, and the opportunity to influence policy and make rules in the future. This leads to a dynamic programming problem in contract design. We model...