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.
Hiring as a Herd: Optimal Unemployment Insurance with Asymmetric Information - 2014
This paper characterizes optimal unemployment insurance (UI) in terms of estimable statistics in the presence of negative duration dependence for the unemployed, with endogenous callback rates generated by asymmetric information. I show how this characterization generalizes the standard Baily-Chetty framework. In addition, I construct an approximation for optimal UI as a function of 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.
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).