Published Papers

Market Competition and Occupational Mismatch 

(2025) 

Journal of Development Economics,  Volume 177, October 2025, 103536 

https://doi.org/10.1016/j.jdeveco.2025.103536

• Felipe Balmaceda

Abstract

This paper shows that local labor market power provides a rationale for the higher prevalence of self-employment in developing economies relative to developed economies. Labor market power creates occupational mismatch--too many workers choose self-employment relative to the competitive benchmark. Because of labor market power, workers under-invest in skills that raise paid-employment productivity and over-invest in those that increase self-employment productivity. Under certain conditions, this exacerbates the occupational mismatch. We also consider a quantity-type product market competition model where self-employees form a competitive fringe. Product-market competition increases the intensity of competition for workers and reduces occupational mismatch.

Keywords

• Labor Market Power,

•  Self-employment,

•  Product Market Power,

•  Free Entry,

•  Wage Inequality,

•  Skill Mismatch,

•  Skill Acquisition.

A Failure of the Market for College Education and On-the-Job Human Capital 

Economics of Education Review (2022)

• Felipe Balmaceda,

Abstract

This paper shows that a \emph{competitive labor market} fails to provide first-best incentives to invest in general human capital and this has distributive consequences: college students and firms underinvest in human capital, and this is more pronounced for high-skill students with low-income parents. Long-term contracts, together with privately provided wage-contingent loans, cannot restore efficiency and eliminate the distributive consequences of this labor market failure.  Government student loans together with firm subsidies to human capital investments fully solve the market failure.

Keywords

• General Skills,

•  Hold-up,

•  Credit Constraints,

•  Wage Floors,

•  Turnover,

•  Employment.

Optimal Task Assignments with Loss-Averse Agents

European Economic Review (2018)

• Felipe Balmaceda,

Abstract

This paper studies optimal task assignments in a setting where agents are expectation-based loss averse according to KoszegiRabin (2006) and KoszegiRabin (2007) and compensated according to an aggregated performance measure in which tasks are technologically independent.  The principal faces a trade-off between paying lower compensation costs by making an agent responsible for all tasks (i.e., multitasking) and restricting the set of implementable effort profiles, and paying higher expected compensation costs by allocating each task to a different agent (i.e., specialization) and being able to implement any feasible effort profile. In the absence of loss aversion, multitasking always dominates specialization, while in the presence of loss aversion, multitasking always dominates specialization when the degree of loss aversion is sufficiently large. Otherwise, specilization can dominate multitasking. It is the implementation problem created by loss aversion, and not the risk aversion feature of loss aversion, that drives our results.

Keywords

• Moral Hazard

• Multiple Tasks

•  Limited Liability,

•  Loss Aversion

•  Contracts

Entrepreneurship vs Paid Employment: Multiple Skills and Financing

Small Business Economics (2018)

• Felipe Balmaceda,

Abstract

We present an occupational choice model with risk-averse agents who are heterogeneous in terms of skills and wealth in a setting with financial frictions.  We show that high-income individuals and middle-income individuals endowed with a balanced portfolio of skills upgrade their skills so the resulting portfolio of skills is more balanced and choose entrepreneurship, while middle-income individuals endowed with an unbalanced portfolio of skills and low-income individuals specialize in the skill in which they have an absolute advantage and choose paid employment. Deeper financial development, a more balanced portfolio of skills, lower entrepreneurial risk and a higher liquidation value result in more entrepreneurship and higher welfare, while wealth redistributions and financial subsidies to entrepreneurs have an ambiguous effects on welfare.

Keywords

• Skill Diversification,

•  Entrepreneurship,

•  Financial Development,

•  Wealth Distribution.

Trust in Cohesive Communities

Journal of Economic Theory (2017)

Felipe Balmaceda, and Juan Escobar

Abstract

This paper studies which social networks maximize trust and welfare when agreements are implicitly enforced. We study a repeated trust game in which trading opportunities arise exogenously and a social network determines the information each player has. We show that cohesive communities, modeled as social networks of complete components, emerge as the optimal community design. Cohesive communities generate some degree of common knowledge of transpired play that allows players to coordinate their punishments and, as a result, yield relatively high equilibrium payoffs. We also show that when news swiftly travel through the network, Pareto efficient networks are minimally connected: the removal of any link isolates some community members. Our results then clarify a sociological debate on the merits of different social structures to foster cooperation and trust.

Keywords

• Trust,

•  Repeated Games,

•  Incomplete Information,

•  Cohession,

•  Networks

Article

Optimal Task Assignments

Games and Economic Behavior (2016)

• Felipe Balmaceda

Abstract

This paper studies optimal task assignments in a risk neutral principal-agent model in which agents are compensated according to an aggregated performance measure. The main trade-off involved is one in which specialization allows the implementation of any possible effort profile, while multitasking constraint the set of implementable effort profiles. Yet, the implementation of any effort profile in this set is less expensive than that under specialization. The principal prefers multitasking to specialization except when tasks are complements and the output after success is small enough so that it is not second-best optimal to implement high effort in each task. This result is robust to several extensions such as the existence of multiple performance measures.

Keywords

• Moral Hazard,

•  Multiple Tasks,

•  Complementarities

•  Implementation 

•  Contracts

The Price of Unobservability: Moral Hazard and Limited Liability

Games and Economic Behavior (2016)

• Felipe Balmaceda, Sasntiago Balseiro, José Correa, and Nicolas Stier-Mosses

Abstract

This article studies a principal-agent problem with discrete outcome and effort space. The principal and the agent are risk neutral and the latter is subject to limited liability. For a given monitoring technology, we consider the maximum possible ratio between the first best social welfare to the social welfare arising from the principal's optimal pay-for-performance contract (the price of unobservability). Our main results provide tight bounds for this price. Key parameters to these bounds are number of possible efforts, the likelihood ratio evaluated at the highest outcome, and the ratio between costs of the highest and the lowest efforts. The paper provides insights on how costly moral hazard and limited liability could be from the social point of view.

Keywords

• Moral Hazard,

•  Adverse Selection,

•  Limited Liability,

•  Robustness,

•  Contracts

Financial liberalization, market structure and credit penetration

Journal of Financial Intermediation (2013)

• Felipe Balmaceda, Ronald Fischer, Felipe Ramirez

Abstract

This paper shows that the effects of financial liberalization on the credit market of a small and capital constrained economy depend on the market structure of domestic banks prior to liberalization. Specifically, under perfect competition in the domestic credit market prior to liberalization, liberalization leads to lower domestic interest rates, in turn leading to increased credit penetration. However, when the initial market structure is one of imperfect competition, liberalization can lead to the exclusion of less wealthy entrepreneurs from the credit market. This provides a rationale for the mixed empirical evidence concerning the effects of liberalization on access to credit in developing markets. Moreover, the analysis provides new insights into the consequences of foreign lenders’ entry into developing economies.

Keywords

• Credit penetration,

•  financial liberalization,

•  banking competition

Uncertainty, Pay for Performance, and Asymmetric Information

Journal of Law, Economics and Organization (2009)

• Felipe Balmaceda

Abstract

This article develops a new rationale for the emergence of pay-for-performance contracts where the labor market is competitive, workers are risk averse, and firms are risk neutral and unaware of workers’ productivities. The article shows that the prevalence of pay for performance rises and the pay-for-performance sensitivity falls as environmental uncertainty increases. This empirical regularity is unaccounted for alternative models such as the standard agency model.

Keywords

•  Adverse Selection,

•  Contracts

• Competitive Market

• Existence of Equilibria

Mergers and CEO Power

Journal of Institutional and Theoretical Economics (2009)

• Felipe Balmaceda

Abstract

In this paper I propose a model of mergers in which synergies and CEO power play a crucial role. A merger is modeled as a bargaining game between the acquiring and target board of directors with the gains from a merger divided according to the generalized Nash-bargaining solution. The model's implications are consistent with the available empirical evidence on stock returns, and yield some new untested implications that are mainly related to the relationship between CEO power, cor- porate governance and mergers. Finally, the model sheds light on the relationship between aggregate merger activity, synergies and CEO power. 

Keywords

• CEO Power,

•  Mergers,

•  Synergies

Economic performance, creditor protection, and labour inflexibility

Oxford Economic Papers (2009)

• Felipe Balmaceda and Ronald Fischer

Abstract

We present a static general equilibrium model of an open economy where agents are heterogeneous in terms of observable wealth and there are endogenous credit constraints due to imperfect creditor protection. Improved credit protection, harder assets, and more efficient bankruptcy procedures increase output, investment, and credit penetration. Better credit protection and harder assets lead to higher interest rate spreads. In a capital constrained (unconstrained) economy, greater (lower) wealth inequality leads to higher (lower) investment and output. Interest rate spreads are lower in richer and more unequal economies in terms of their wealth distribution. We also show that increased labour protection leads to lower wages and output in the presence of credit market imperfections. Nevertheless, increased protection benefits workers in (and owners of) firms with strong balance sheets.

Keywords

• Credit protection,

•  Labor inflexibility,

•  Financial markets

ASYMMETRIC DYNAMIC PRICING IN A LOCAL GASOLINE RETAIL MARKET

Journal of Industrial Economics (2008)

• Felipe Balmaceda and Paula Soruco

Abstract

Asymmetric-price adjustment is a common phenomenon in many markets around the world, particularly in retail gasoline markets. This paper studies the existence of this phenomenon in the retail gasoline market in the city of Santiago, Chile, using a data set of weekly gas station prices that covers a period of almost four years. We found that prices adjust asymmetrically, and the asymmetry is different for branded gas stations and unbranded stations. In addition, we found that the asymmetry for high-margin stations is statistically equivalent to that for low-margin stations. This evidence is suggestive of collusion as a rationale for the asymmetric pricing policy observed.

Keywords

• Pass-trhough

•  Rockets and Feathers

•  Gasoline Markets

• Regulation

Vertical Integration in Unregulated Industries with Essential Facilities

Journal of Industrial Economics (2006)

• Felipe Balmaceda and Eduardo Savedra

Abstract

In this paper, we consider a market that is operated by a non-integrated monopoly upstream that owns an important essential facility and an duopolistic market downstream that is facing entry in the monopolistic upstream market. We show that: (i) for small fixed costs of building a new facility the unique equilibrium entails vertical integration for all firms and duplication of essential facilities; (ii) for an intermediate range, the unique equilibrium entails full vertical integration and a shared-facility; and (iii) for large fixed costs, the unique equilibrium entails vertical integration by the incumbent, no integration by the entrant and a shared-facility. In addition, the equilibrium in (i) is always efficient relative to a shared-facility agreement, the equilibrium in (ii) is inefficient relative to duplication of essential facilities for fixed costs lower than certain cutoff and efficient otherwise, and the equilibrium in (iii) is always efficient relative to duplication of essential facilities.

Keywords

•  Verical Integration

• Esential Facilities

• Rising Rival's Cost

• Cournot

Firm-Sponsored General Training

Journal of Labor Economics (2005)

• Felipe Balmaceda

Abstract

This article analyzes firm and worker’s incentives to invest in general and specific training when these are separable in the production technology and wages are determined by the outside-option principle. It is shown that firms pay for general training, while workers receive the full return on it, and firms and workers share both the costs and benefits of specific training. The case of delayed general training is also studied. When general training is delayed, it is shown that the strategic complementarity between specific and general training increases the worker’s incentives to invest in specific training.

Keywords

• General Human Capital,

•  Specific Human Capital

•  Hold-up

• Competitive Labor Markets

• Firm Sponsored

Economic performance, creditor protection, and labour inflexibility

Oxford Economic Papers (2009)

• Felipe Balmaceda and Ronald Fischer

Abstract

We present a static general equilibrium model of an open economy where agents are heterogeneous in terms of observable wealth and there are endogenous credit constraints due to imperfect creditor protection. Improved credit protection, harder assets, and more efficient bankruptcy procedures increase output, investment, and credit penetration. Better credit protection and harder assets lead to higher interest rate spreads. In a capital constrained (unconstrained) economy, greater (lower) wealth inequality leads to higher (lower) investment and output. Interest rate spreads are lower in richer and more unequal economies in terms of their wealth distribution. We also show that increased labour protection leads to lower wages and output in the presence of credit market imperfections. Nevertheless, increased protection benefits workers in (and owners of) firms with strong balance sheets.

Keywords

• Credit protection,

•  Labor inflexibility,

•  Financial markets