Working Papers

Optimal Welfare-to-Work Programs with Worker Profiling [draft]

Abstract In welfare-to-work programs, profiling unemployed individuals based on their job-finding probability is crucial for directing them to suitable welfare policies. An optimal profiling strategy is obtained by incorporating dynamic learning about recipients’ employability within a principal-agent framework. The paper characterizes scenarios wherein the optimal profiling approach categorizes a certain percentage of lowly-employable workers as highly-employable, thereby including them into delegated job searches alongside genuinely highly-employable workers. The implementation of an optimal profiling strategy in the United States is estimated to result in average per-capita net-present savings of $27,769.

Other Projects

Sustainable Social Security (with Lancia F., Russo A., and Worrall T.) [slides]

Abstract We examine the optimal design of a social security scheme in an economy with stochastic mortality, where younger generations can default on pension entitlements that were previously promised to older generations. The presence of stochastic mortality introduces cohort-specific uncertainty and social security plays a role in hedging longevity risk. We analyze the constrained efficient allocation chosen by a benevolent social planner that maximizes a weighted sum of the utility of current and future generations subject to limited enforcement constraints. We show that the resulting optimal social security scheme is linked to the mortality risk and has both flat-rate and contributory-related elements. The paper quantifies the risk borne by each generation during both the transition period and in the long run. Trends in replacement and contribution rates of pension systems in advanced economies during the period 1960-2020 resemble the optimal sustainable social security scheme.

Public Debt and Growth in a Democracy with Partisan Conflict (with Lancia F. and Russo A.) [slides]

Abstract  We examine the strategic relationship between public investments and pork barrel spending, along with public debt, when spending-biased political parties alternate stochastically in power. The driving force of the model is the intergenerational conflict over the allocation and financing of the public budget. Successive generations of voters choose fiscal policies through repeated elections. We characterize the Markov-perfect equilibrium of the voting game and show that the party biased towards public investments exhibits less discipline compared to the party favoring pork barrel spending. The increased growth resulting from public investments raises the likelihood of indebtedness, ultimately restraining public spending in the long run. Our findings shed light on the coexistence of rising debt and political cycles observed in modern economies.

Antitrust Policy and Market Dynamics (with S. Ruiz Palazuelos) [slides]

Abstract We provide sufficient conditions for the existence of a stationary Nash equilibrium in a network game where each node’s utility is a function of her friends, and her friends of friends. In each period, each node strategically decides which link to create upon payment of a flow cost. In every period, a node is also subject to an iid shock that enables her to erase an existing link. The equilibrium is stationary when no new link is created, nor any existing link is deleted. In case multiple equilibria exist, we specify initial conditions for the network to converge to any specific equilibrium.