Posted Content•
Efficient Unemployment Insurance
01 Jan 1997-Research Papers in Economics (Massachusetts Institute of Technology (MIT), Department of Economics)-
TL;DR: In this article, the authors argue that moderate unemployment insurance not only reduces the uncertainty faced by risk-averse workers but also improves efficiency and raises output, and they develop a model in which the decentralized equilibrium is inefficient without unemployment insurance, because the labor market endogenously creates jobs that provide risk averse workers with low unemployment risk and low wages.
Abstract: This paper argues that moderate unemployment insurance not only reduces the uncertainty faced by risk-averse workers but also improves efficiency and raises output. We develop a model in which the decentralized equilibrium is inefficient without unemployment insurance, because the labor market endogenously creates jobs that provide risk-averse workers with low unemployment risk and low wages. Essentially, the labor market offers its own version of insurance.
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Book•
01 Jan 2000
TL;DR: In this paper, an introduction to recursive methods for dynamic macroeconomics is presented, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design.
Abstract: Recursive methods offer a powerful approach in dynamic macroeconomics. This book contains both an introduction to recursive tools, including standard applications such as asset pricing, and advanced material, including analyses of reputational mechanisms and contract design. The tools are presented with enough technical sophistication to get the reader started working on practical problems. When numerical simulations are called for, the book provides suggestions for how to proceed, as well as references for further reading. The applications cover many substantive issues in macroeconomics, such as equilibrium asset prices, market incompleteness, wealth distribution, fiscal-monetary theories of inflation, government debt, optimal labour and capital taxation, time consistency and credible government policies, optimal social insurance, economic growth and labour market dynamics.
1,685 citations
Posted Content•
TL;DR: The authors survey non-competitive theories of training and draw some tentative policy conclusions from these models, and discuss a variety of evidence which support the predictions of noncompetitive theories, and they draw a tentative policy conclusion.
Abstract: In this paper, we survey non-competitive theories of training. With competitive labor markets, firms never pay for investments in general training, whereas when labor markets are imperfect, firm-sponsored training arises as an equilibrium phenomenon. We discuss a variety of evidence which support the predictions of non-competitive theories, and we draw some tentative policy conclusions from these models.
931 citations
Posted Content•
TL;DR: This paper developed a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms.
Abstract: This paper develops a new framework for examining the distributional consequences of international trade that incorporates firm and worker heterogeneity, search and matching frictions in the labor market, and screening of workers by firms. Larger firms pay higher wages and exporters pay higher wages than non-exporters. The opening of trade enhances wage inequality and raises unemployment, but expected welfare gains are ensured if workers are risk neutral. And while wage inequality is larger in a trade equilibrium than in autarky, reductions of trade impediments can either raise or reduce wage inequality.
739 citations
01 Jan 2009
TL;DR: In this paper, the authors introduce the modeling of heterogeneous agents economies, learn about economies with incomplete markets, and search and matching frictions, and review some of the numerical methods used to solve heterogeneous agent economies.
Abstract: Objective. The objective of the course is to introduce the modeling of heterogeneous agents economies, learn about economies with incomplete markets, and search and matching frictions. In the first part of the course, the student will familiarize with the modern quantitative techniques used in macroeconomics, and will be exposed to important research questions in macroeconomics. In addition, the course will review some of the numerical methods used to solve heterogeneous agents economies with incomplete markets.
699 citations
Cites background from "Efficient Unemployment Insurance"
...MPa, section 4 Montgomery (1991), Peters (1991), Moen (1997), Shimer (1996), Acemoglu and Shimer (1999a), Acemoglu and Shimer (1999b),Julien, Kennes, and King (2000), Burdett, Shi, and Wright (2001), Shi (2002), Coles and Eeckhout (2003)....
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TL;DR: The authors developed a model of noncompetitive labor markets in which high-wage and low-wage jobs coexist, where minimum wages and unemployment benefits shift the composition of employment toward high-level jobs.
Abstract: This article develops a model of noncompetitive labor markets in which high‐wage (good) and low‐wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high‐wage jobs. Because the composition of jobs in the laissez‐faire equilibrium is inefficiently biased toward low‐wage jobs, these labor market regulations increase average labor productivity and may improve welfare.
545 citations
Cites background from "Efficient Unemployment Insurance"
...Now, we have to determine ub and ug separately, and the aggregate production of bad and good 12 See Acemoglu and Shimer (1999b, 2000) for a detailed analysis of directed search with wage posting. intermediate goods are Yb 5 (1 2 ub)l and Yg 5 (1 2 ug)(1 2 l), where l is the fraction of workers applying to the bad-job sector....
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...None of these studies (except in part Acemoglu and Shimer 1999a) shares the result that minimum wages and unemployment insurance improve the composition of jobs, since this feature crucially relies on search and on the heterogeneity of jobs....
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...Now, we have to determine ub and ug separately, and the aggregate production of bad and good 12 See Acemoglu and Shimer (1999b, 2000) for a detailed analysis of directed search with wage posting. intermediate goods are Yb 5 (1 2 ub)l and Yg 5 (1 2 ug)(1 2 l), where l is the fraction of workers…...
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...The results in Acemoglu and Shimer (1999b) also imply that when b 5 h(u), the composition of jobs would be efficient. results are unaffected, but we obtain the additional result that an increase in the progressivity of unemployment benefits increases the fraction of low-wage jobs....
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...The main 13 See Acemoglu and Shimer (1999b) for a discussion of the differences between directed search and wage posting....
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References
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TL;DR: In this article, the role of imperfect information in a principal-agent relationship subject to moral hazard is considered, and a necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived.
Abstract: The role of imperfect information in a principal-agent relationship subject to moral hazard is considered. A necessary and sufficient condition for imperfect information to improve on contracts based on the payoff alone is derived, and a characterization of the optimal use of such information is given.
7,964 citations
"Efficient Unemployment Insurance" refers background in this paper
...H ig h er un em pl oy m en t in su ra n ce m ak es in di ff er en ce cu rv es fl at te r, h av in g th e op po si te ef fe ct . of the moral hazard problem (e.g., Holmstrom 1979)....
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Posted Content•
TL;DR: In this paper, the authors study moral hazard with many agents and focus on two features that are novel in a multiagent setting: free riding and competition, and show that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally.
Abstract: This article studies moral hazard with many agents. The focus is on two features that are novel in a multiagent setting: free riding and competition. The free-rider problem implies a new role for the principal: administering incentive schemes that do not balance the budget. This new role is essential for controlling incentives and suggests that firms in which ownership and labor are partly separated will have an advantage over partnerships in which output is distributed among agents. A new characterization of informative (hence valuable) monitoring is derived and applied to analyze the value of relative performance evaluation. It is shown that competition among agents (due to relative evaluations) has merit solely as a device to extract information optimally. Competition per se is worthless. The role of aggregate measures in relative performance evaluation is also explored, and the implications for investment rules are discussed.(This abstract was borrowed from another version of this item.)
4,125 citations
TL;DR: The authors analyzes competitive markets in which the characteristics of the commodities exchanged are not fully known to at least one of the parties to the transaction, and suggests that some of the most important conclusions of economic theory are not robust to considerations of imperfect information.
Abstract: Economic theorists traditionally banish discussions of information to footnotes. Serious consideration of costs of communication, imperfect knowledge, and the like would, it is believed, complicate without informing. This paper, which analyzes competitive markets in which the characteristics of the commodities exchanged are not fully known to at least one of the parties to the transaction, suggests that this comforting myth is false. Some of the most important conclusions of economic theory are not robust to considerations of imperfect information.
3,990 citations
"Efficient Unemployment Insurance" refers background in this paper
...One can argue that adverse selection, as in Rothschild and Stiglitz (1976), might prevent this, but more analysis would be required to reach a definite conclusion. unemployment insurance 921 Our analysis also contains methodological improvements over the existing search literature....
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TL;DR: In this paper, a job-specific shock process in the matching model of unemployment with non-cooperative wage behavior is modeled and the authors obtain endogenous job creation and job destruction processes and study their properties.
Abstract: In this paper we model a job-specific shock process in the matching model of unemployment with non-cooperative wage behaviour. We obtain endogenous job creation and job destruction processes and study their properties. We show that an aggregate shock induces negative correlation between job creation and job destruction whereas a dispersion shock induces positive correlation. The job destruction process is shown to have more volatile dynamics than the job creation process. In simulations we show that an aggregate shock process proxies reasonably well the cyclical behaviour of job creation and job destruction in the United States.
3,752 citations
Book•
01 Aug 1990
TL;DR: In this article, the model of balanced growth is used to model the labour market and balance-growth adjustment dynamics, and search intensity and job advertising are modeled as ananlysis of the labor market.
Abstract: Part 1 Unemployment in the model of balanced growth: the labour market long-run equilibrium and balanced growth adjustment dynamics. Part 2 further ananlysis of the labour market: search intensity and job advertising.
3,638 citations