Optimal Social Insurance with Individual Private Insurance and Moral Hazard - forthcoming in The Journal of Risk and Insurance
This paper characterizes optimal social insurance in an economy where competitive firms also provide insurance to workers facing uncertain outcomes. An ex-ante heterogeneous population of workers exerts effort to increase the likelihood of high outcome events. 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 ex-ante heterogeneity in the presence of optimal private insurance changes the optimal prescription for social insurance away from zero. Moreover, the relative source of the variation in outcomes due to ex-ante heterogeneity and ex-post shocks plays a significant role in the welfare loss associated with setting optimal social insurance without recognizing the presence of private insurance.
Efficiency Wages with Heterogeneous Agents - forthcoming in International Game Theory Review
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 - under review at FinanzArchiv
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).