Javier Gonzalez-Morin

Job market paper

Exhaustion and Burnout - a Principal-Agent Approach (draft)

I study dynamic contracts where effort increases output but also raises the risk of exhaustion, leading to temporary downturns in productivity. Although exhaustion is a bad signal about future profits, it is a good signal of the agent’s effort. These downturns can thus be used as incentive devices: the principal commits to compensate the agent when productivity collapses, while successes play the conventional role of performance pay. Optimal contracts thus blend rewards with protection. My results show that negative intertemporal effects, though technologically harmful, can be leveraged to strengthen incentives in dynamic moral hazard settings. When downturns are private information of the agent, the contracts still provide payments during those periods to induce truthful revelation.

Work in progress

On the (Relative) Merits of Money Burning For Optimal Contracting, joint with David Martimort (draft coming soon)

We consider the following screening model of procurement. An agent (the seller) has private information on his cost parameter. A principal (the buyer) learns an ex post signal on this parameter. The signal is private information to the principal and proper incentives to reveal this signal must be designed. In related contexts, money burning, i.e., the ex post destruction of some of the gains from trade, has shown to be useful to provide such incentives. We demonstrate that money burning allows the principal to implement the first-best output with zero information rent for the agent; although it is never optimal to do so since output distortions are less costly. More generally, money burning is rarely optimal, and only used as a tool of last resort if output distortions are no longer feasible. In particular, when output must be chosen before the non-verifiable signal realizes, money burning becomes more attractive.

Forward Guidance, Limited Commitment and Reputation, joint with Emil Mortensen (draft)

We argue that reputational concerns and limited commitment help overcome the forward guidance puzzle. Specifically, we study monetary policy in a New Keynesian model with a recurrent Zero Lower Bound where 1) the central bank is unable to commit to future policy, and 2) has private information about its discount factor giving rise to type-based reputation. Limited commitment imposes an upper bound on the length of sustainable promises while reputational concerns imply that forward guidance remains a useful policy tool at the Zero Lower Bound. Quantitative exploration shows that there is a non-monotonic relationship between the potency of forward guidance and the persistence of the Zero Lower Bound when the central bank cannot commit, while it is monotonically decreasing with full commitment. We find that the optimal length of forward guidance is 5 quarters with limited commitment compared to just 1 quarter with full commitment.