Research & Publications

Working Papers

We consider a principal-agent model where the principal can monitor the agent’s report. If the agent is caught being non-compliant, the principal can punish the agent with a fine. To reduce the probability of being verified, the agent can engage in costly avoidance. We design incentive and avoidance compatible regulatory policies and derive optimal compliant mechanisms for single and multiple agents.

We consider an economy where many sellers sell identical goods to many buyers. Each seller has a unit supply and each buyer has a unit demand. The only possible information flow about prices is through costly advertising. We show that in equilibrium the sellers use mixed strategies in pricing which leads to price and advertisement distributions. With convex advertising costs each seller sends only one advertisement in the market. We also delineate a class of advertising costs which ensures that sellers may send multiple advertisements in equilibrium. Higher prices are advertised more than lower prices.

We incorporate the division of income between capital and labor into analysis on the relationship between inequality and growth. Using historical data, we document that changes in the top 1 % income shares are positively associated with subsequent growth of per capita GDP when the capital share of income is low, whereas under high capital share, the association is negative. We show that these findings are compatible with a theoretical analysis that emphasises how changes in the distribution of income translate into the accumulation of capital and overall economic activity through the interplay between precautionary saving motives and consumption smoothing. We also investigate how accounting for financial frictions affects our main findings.


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