"Informal Risk Sharing with Local Information" (with Attila Ambrus and Wayne Gao ) The Review of Economic Studies 89, 2329–2380 (2022). [pdf]
"Regime Change in Large Information Networks" (with Joan de Martí ) Games and Economic Behavior 113, 262-84 (2019). [pdf]
"Incentive Contracts and Peer Effects in the Workplace" (with Marc Claveria and Nicolas Oviedo-Dávila) R&R Journal of Political Economy. [pdf]
We study the problem of a principal designing wage contracts that simultaneously incentivize and insure workers. Workers’ incentives are connected through chains of productivity spillovers, represented by a network of peer-effects. We solve for the optimal linear contract for any network and show that optimal incentives are steeper for more central workers. We link firm profits to organizations’ structure via the spectral properties of the co-worker network. When production is modular, the incentive allocation rule is sensitive to the link structure across and within modules. When firms can’t write personalized contracts, better connected workers extract rents and total surplus is reduced. In this case, unemployment emerges endogenously because large within-group differences in centrality can decrease firm’s profits.
"Simple Market Structures are Incomplete" (with Johannes Gierlinger) R&R International Economic Review [pdf]
We study how risk is shared using simple assets, each of which pays on a specific subset of payoff-relevant variables. We show that a market composed of simple assets is incomplete – no matter how many or which assets exist– because it can never address the joint realizations of some distinct risks. We also show that this inability to refine trades generates spill overs between agents with different types of financial constraints. Agents of type i are exposed to uninsurable income risk unless there exists another type j who can condition on all variables affecting i’s income
“Learning, Sorting, and Turnover in Unstable Environments” [pdf]
I develop a framework where workers and firms learn continuously about the worker’s productivity type, which itself fluctuates randomly and continuously. Workers receive a competitive spot wage and must decide when to switch between firms, given their belief about their own type. Under supermodularity in production, I show that positive assortative matching (PAM) extends beyond the stable environment of Eeckhout & Weng (2010) to a situation of residual uncertainty that exhibits periods of unlearning, defined as increasing levels of uncertainty along a match. I show that risk-neutrality of workers and skills evolving as a martingale are sufficient to retain PAM. I then extend this setup to allow workers to exert a level of effort subject to classical carreer concerns (a la Holmstrom) and find that PAM can only be sustained under strong parameter restrictions.
“Partial Insurance Networks: Food Sharing in Tsimane' Villages” (with Michael Gurven, Paul Hooper, and Hillard Kaplan ) [pdf]
We empirically analyze the Pareto-optimal risk sharing transfers subject to local information constraints analyzed in Ambrus, Gao, and Milán (2017). Using data from Tsimane’ indigenous communities in rural Bolivia, we find that the observed exchanges across households match the efficient transfers predicted by the theory, and that the theory can account for the deviation from full insurance observed in the data. We propose a reinterpretation of the standard empirical results of risk sharing, predicting household heterogeneity in response to income shocks. We show that this network-based variation in consumption behavior is borne out in the data, and that it can be interpreted economically in terms of consumption volatility.
“Local Risk Sharing with Hidden Income” (with Johannes Gierlinger)
We analyze a model of dynamic insurance with hidden income and local contracts. Households may share risk only with their direct neighbors along a fixed and exogenous network of connections. Therefore, while indirect neighbors cannot directly share a household’s risk, they may nonetheless lower the cost of providing truth-telling incentives in the future, thus improving overall levels of insurance. We argue that the diffusion of information along the network determines the shape of optimal contracts and the type of stylized patterns of dynamic dependence in consumption. We provide testable predictions on how the location of an income shock affects current and future consumption throughout the network, and we test these unique dynamic relationships using data on village economies in rural Bolivia.