Optimal Social Insurance for Heterogeneous Agents with Private Insurance - forthcoming, The Journal of Risk and Insurance.
This paper analytically characterizes optimal social insurance in an economy with both ex-ante heterogeneity and ex-post risk, decomposing the benefits of social insurance into a redistributive and insurance benefit. Agents exert effort to increase the likelihood of high outcome events and are additionally supplied actuarially fair private insurance for this earnings risk. This paper is novel in its joint consideration of two sources of heterogeneity, two potential sources of insurance, and an endogenous ex-post distribution of outcomes. The introduction of optimal private insurance eliminates the insurance benefit of social insurance, but leaves the redistributive benefit intact. An income effect induced by the crowding out of private insurance generates an additional benefit to social insurance when it takes the form of a linear income tax. Finally, numerical simulations illustrate how the relative contributions of ex-ante and ex-post risk differentially impact the welfare loss associated with setting optimal social insurance without recognizing the presence of private insurance.
Efficiency Wages with Heterogeneous Agents - International Game Theory Review, 16(3), 2014.
This paper builds a model of efficiency wages with heterogeneous workers in the economy who differ with respect to their disutility of labor effort. In such an economy, two types of pure strategy symmetric Nash equilibria in firm wage offers can exist: a no-shirking equilibrium in which all workers exert effort while employed and a shirking equilibrium in which within each firm some workers exert effort while others shirk. The type of equilibrium that prevails in the economy depends crucially on the extent of heterogeneity among the workers and the equilibrium rate at which workers join firms from the unemployment pool.
Optimal Unemployment Insurance with Endogenous Negative Duration Dependence - 2015. Revise and Resubmit.
This paper characterizes optimal unemployment insurance (UI) in the presence of endogenous negative duration dependence in callback rates for the unemployed. Plausible mechanisms for generating such duration dependence include an employer screening model with asymmetric information and/or human capital depreciation. Regardless of the particular mechanism, I generalize the standard Baily-Chetty framework to account for such endogeneity of the marginal return to search effort. In addition, I construct an approximation for optimal UI as a function of known estimable statistics and the average elasticity of callback rates with respect to unemployment benefits. There is no estimate of this elasticity in the literature, but I illustrate the responsiveness of optimal UI to this elasticity and show via numerical simulations that standard estimates of the optimal replacement rate may be eight percent lower than what is in fact optimal in a setting with endogenous callback rates.
Information and Inflation: An Analysis of Grading Behavior - 2015. Under Review.
I study the impact on grades assigned at Occidental College, a selective private liberal arts college, following the introduction of a policy that provides information about average grades across campus to instructors each semester. Using transcript level data from 2009 to 2014, I find that overall average grades increased after the information provision, with previously below-average graders increasing grades by 0.04 points more than the above-average graders. This amounts to an increase that is 88\% larger for the below-average groups. The finding is consistent with inequality-averse preferences with respect to grade assignments for instructors. I find that the effect is strongest in the intermediate (200-level) and advanced (300-level) courses, as well as in the lowest grading division of the Sciences. The grade distribution also shifted with previously below-average grading groups increasing the share of A's and decreasing the share of B's relative to the above-average grading groups following the grade information, with little change in grades below a B-.
Optimal Income Taxation with Social Preferences - 2013.
This paper characterizes optimal nonlinear income taxation of individuals who exhibit social preferences. If individuals exhibit equity concerns, above and beyond the government's social welfare criterion, how is the shape of the marginal tax schedule impacted? In particular, I consider individuals who are concerned not only with their own consumption and labor supply, but also care positively or negatively about some aggregate consumption reference point. In addition, I allow for individuals to differ with respect to their attitudes towards this reference point. This framework flexibly allows for the specification of preferences that may be concerned with baseline altruism, inequality aversion, or social efficiency. A generalization of the optimal tax rate formula is derived in terms of the distribution of skills, the elasticity of labor supply, the government's distributional objectives, and new in this setting, the distribution of other-concerning preferences across the population.
Correction: Albrecht and Vroman's Nonexistence Proof of Symmetric Nash Equilibrium with Efficiency Wages - 2011.
I correct the proof of the main proposition in the analysis of an efficiency wage model with a continuum of heterogeneous agents constructed by Albrecht and Vroman (1998).