Optimal Unemployment Insurance with Endogenous Negative Duration Dependence, Public Finance Review, forthcoming.This paper characterizes optimal unemployment insurance (UI) in an economy with endogenous negative duration dependence in hiring rates for the unemployed. The characterization generalizes the standard Baily (1978)-Chetty (2006) result and is independent of the particular mechanism generating endogenous hiring rates. I find that at the social optimum, UI equates the moral hazard cost with the sum of the insurance benefit and a new externality correction term. The sign of this externality correction term depends, in part, on the responsiveness of hiring rates to the UI benefit. I show how the effect of UI on hiring rates in turn depends on the particular assumptions about firm behavior, considering the cases of employer screening and human capital depreciation models.
Optimal Social Insurance for Heterogeneous Agents with Private Insurance, The Journal of Risk and Insurance, 83 (2), 2016.
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.
Information and Inflation: An Analysis of Grading Behavior, The B.E. Journal of Economic Analysis and Policy, 16 (2), 2016.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 after the information provision, previously below average grading courses increased grades by 0.08 grade points more than the previously above average grading courses. This finding of grade compression holds across all course levels and divisions, expect for in the Sciences. With respect to students, the relative increase in grades in the previously low grading courses disproportionately benefited Black and Hispanic students relative to White and Asian students. In addition, the grade distribution shifted with previously below average grading courses increasing the share of A's and decreasing the share of B's and C's following the grade information provision.
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 Income Taxation with Social Preferences
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
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).