Dynamic Incentive Contracts under Parameter Uncertainty * We analyze a long-term contracting prob... more Dynamic Incentive Contracts under Parameter Uncertainty * We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's "quality", the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates.
Cyclical patterns in earnings can arise when contracts between firms and their workers are incomp... more Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
Wage inequality between similar workers has been on the rise in many rich countries. Recent empir... more Wage inequality between similar workers has been on the rise in many rich countries. Recent empirical research suggests that heterogeneity in firm characteristics is crucial to understand wage dispersion. Lower trade costs as well as labor and product market reforms are considered critical drivers of inequality dynamics. We ask how these factors affect wage dispersion and how much of their effect on inequality is attributable to changes in wage dispersion between and within firms. To tackle these questions, we incorporate directed job search into a dynamic model of international trade where wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for the years 1996-2009, we find that firm heterogeneity explains about half of the surge in inequality. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, by international trade.
Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneit... more Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level.
HAL (Le Centre pour la Communication Scientifique Directe), 2022
Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la ... more Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la finance traditionnelle. Même s'il existe des stablecoins dont l'arrimage est garanti par un tiers de confiance, cet article se concentre principalement sur les stablecoins gérés directement par un système d'incitations sur une blockchain décentralisée. Nous mettons en évidence les enjeux de gouvernance et de liquidation des stablecoins décentralisés, qui sont au coeur du système de maintien de leur valeur. Enfin, nous discutons des risques associés à ces stablecoins, notamment les mécanismes entraînant une perte de stabilité.
Any opinions expressed here are those of the author(s) and not those of the institute. Research d... more Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.
We thank the Kauffman Foundation and the Barcelona GSE. The views expressed herein are those of t... more We thank the Kauffman Foundation and the Barcelona GSE. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper documents a robust empirical regularity: in the long-run, higher trade openness is cau... more This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows to deal with endogeneity concerns, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we carefully purge the data from business cycle eects, include a host of institutional and geographical variables, and control for within-country trade. Our main nding is robust to various denitions of unemployment rates and openness measures. The preferred specication suggests that a 10 percent increase in total trade openness reduces unemployment by about one percentage point. Moreover, we show that openness aects unemployment mainly through its eect on TFP and that labor market institutions do not appear to condition the eect of openness.
This paper proposes a job-market signaling model where workers use education to signal their type... more This paper proposes a job-market signaling model where workers use education to signal their type, as in Spence (1973), but firms are able to learn the ability of their employees over time. If learning is sufficiently efficient, we find that the intuitive criterion does not select the 'Riley' separating equilibrium. In general, for separating equilibrium outcomes, the education gap between low and high types increases with the speed of learning. Introducing search frictions into the model, we show that asymmetric information leads to inefficient separations so that signaling yields employment and welfare gains. * We are very grateful to Egbert Dierker and Gerhard Sorger for their helpful comments.
Cyclical patterns in earnings can arise when contracts between firms and their workers are incomp... more Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
Firm Dynamics and Residual Inequality in Open Economies * Increasing wage inequality between simi... more Firm Dynamics and Residual Inequality in Open Economies * Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firm growth explains some recent empirical regularities on firm and labor market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labor market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic regulatory reform.
for their comments. Julien Prat acknowledges the support of the Investissements d'Avenir grant (A... more for their comments. Julien Prat acknowledges the support of the Investissements d'Avenir grant (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneit... more Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level.
Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la ... more Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la finance traditionnelle. Même s'il existe des stablecoins dont l'arrimage est garanti par un tiers de confiance, cet article se concentre principalement sur les stablecoins gérés directement par un système d'incitations sur une blockchain décentralisée. Nous mettons en évidence les enjeux de gouvernance et de liquidation des stablecoins décentralisés, qui sont au coeur du système de maintien de leur valeur. Enfin, nous discutons des risques associés à ces stablecoins, notamment les mécanismes entraînant une perte de stabilité.
We construct and estimate by maximum likelihood an equilibrium search model where wages are set b... more We construct and estimate by maximum likelihood an equilibrium search model where wages are set by Nash bargaining and idiosyncratic productivity follows a geometric Brownian motion. The proposed framework enables us to endogenize job destruction and to estimate the rate of learning-by-doing. Although the range of the observations is not independent of the parameters, we establish that the estimators satisfy asymptotic normality. The structural model is estimated using Current Population Survey data on accepted wages and employment durations. We show that it captures almost perfectly the joint distribution of wages and job spells. We find that the rate of learning-by-doing has an important positive effect on aggregate output and a small impact on employment.
We characterize optimal redistribution in a dynastic family model with human capital. We show how... more We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-o¤ between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge di¤ers from the wedge for bequests because human capital carries risk: its returns depend on the non-diversi…able risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power ... more We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of the Bitcoin network. We show that free entry places an upper-bound on mining revenues and we devise a structural framework to measure its value. Calibrating the model's parameters allows us to accurately forecast the evolution of the network computing power over time. We establish the accuracy of the model through out-of-sample tests and investigation of the entry rule. JEL-Codes: D410, L100.
Journal of the European Economic Association, Feb 1, 2018
Wage inequality between similar workers has been on the rise in many rich countries. Recent empir... more Wage inequality between similar workers has been on the rise in many rich countries. Recent empirical research suggests that heterogeneity in firm characteristics is crucial to understand wage dispersion. Lower trade costs as well as labor and product market reforms are considered critical drivers of inequality dynamics. We ask how these factors affect wage dispersion and how much of their effect on inequality is attributable to changes in wage dispersion between and within firms. To tackle these questions, we incorporate directed job search into a dynamic model of international trade where wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for the years 1996-2009, we find that firm heterogeneity explains about half of the surge in inequality. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, by international trade.
Investment in reputation responds positively to news shocks and to current aggregate shocks when ... more Investment in reputation responds positively to news shocks and to current aggregate shocks when they are autocorrelated. Idiosyncratic risk is contractionary and reduces the response to aggregate shocks. In this sense the rise in idiosyncratic risk can explain the great moderation -- the two have happened roughly at the same time. The greater cyclicality of durables can also be explained with this mechanism because durables have greater technological products and firms making them have more prove by exerting effort.
Dynamic Incentive Contracts under Parameter Uncertainty * We analyze a long-term contracting prob... more Dynamic Incentive Contracts under Parameter Uncertainty * We analyze a long-term contracting problem involving common uncertainty about a parameter capturing the productivity of the relationship, and featuring a hidden action for the agent. We develop an approach that works for any utility function when the parameter and noise are normally distributed and when the effort and noise affect output additively. We then analytically solve for the optimal contract when the agent has exponential utility. We find that the Pareto frontier shifts out as information about the agent's quality improves. In the standard spot-market setup, by contrast, when the parameter measures the agent's "quality", the Pareto frontier shifts inwards with better information. Commitment is therefore more valuable when quality is known more precisely. Incentives then are easier to provide because the agent has less room to manipulate the beliefs of the principal. Moreover, in contrast to results under one-period commitment, wage volatility declines as experience accumulates.
Cyclical patterns in earnings can arise when contracts between firms and their workers are incomp... more Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
Wage inequality between similar workers has been on the rise in many rich countries. Recent empir... more Wage inequality between similar workers has been on the rise in many rich countries. Recent empirical research suggests that heterogeneity in firm characteristics is crucial to understand wage dispersion. Lower trade costs as well as labor and product market reforms are considered critical drivers of inequality dynamics. We ask how these factors affect wage dispersion and how much of their effect on inequality is attributable to changes in wage dispersion between and within firms. To tackle these questions, we incorporate directed job search into a dynamic model of international trade where wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for the years 1996-2009, we find that firm heterogeneity explains about half of the surge in inequality. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, by international trade.
Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneit... more Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level.
HAL (Le Centre pour la Communication Scientifique Directe), 2022
Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la ... more Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la finance traditionnelle. Même s'il existe des stablecoins dont l'arrimage est garanti par un tiers de confiance, cet article se concentre principalement sur les stablecoins gérés directement par un système d'incitations sur une blockchain décentralisée. Nous mettons en évidence les enjeux de gouvernance et de liquidation des stablecoins décentralisés, qui sont au coeur du système de maintien de leur valeur. Enfin, nous discutons des risques associés à ces stablecoins, notamment les mécanismes entraînant une perte de stabilité.
Any opinions expressed here are those of the author(s) and not those of the institute. Research d... more Any opinions expressed here are those of the author(s) and not those of the institute. Research disseminated by IZA may include views on policy, but the institute itself takes no institutional policy positions. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author.
We thank the Kauffman Foundation and the Barcelona GSE. The views expressed herein are those of t... more We thank the Kauffman Foundation and the Barcelona GSE. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper documents a robust empirical regularity: in the long-run, higher trade openness is cau... more This paper documents a robust empirical regularity: in the long-run, higher trade openness is causally associated to a lower structural rate of unemployment. We establish this fact using: (i) panel data from 20 OECD countries, (ii) cross-sectional data on a larger set of countries. The time structure of the panel data allows to deal with endogeneity concerns, whereas cross-sectional data make it possible to instrument openness by its geographical component. In both setups, we carefully purge the data from business cycle eects, include a host of institutional and geographical variables, and control for within-country trade. Our main nding is robust to various denitions of unemployment rates and openness measures. The preferred specication suggests that a 10 percent increase in total trade openness reduces unemployment by about one percentage point. Moreover, we show that openness aects unemployment mainly through its eect on TFP and that labor market institutions do not appear to condition the eect of openness.
This paper proposes a job-market signaling model where workers use education to signal their type... more This paper proposes a job-market signaling model where workers use education to signal their type, as in Spence (1973), but firms are able to learn the ability of their employees over time. If learning is sufficiently efficient, we find that the intuitive criterion does not select the 'Riley' separating equilibrium. In general, for separating equilibrium outcomes, the education gap between low and high types increases with the speed of learning. Introducing search frictions into the model, we show that asymmetric information leads to inefficient separations so that signaling yields employment and welfare gains. * We are very grateful to Egbert Dierker and Gerhard Sorger for their helpful comments.
Cyclical patterns in earnings can arise when contracts between firms and their workers are incomp... more Cyclical patterns in earnings can arise when contracts between firms and their workers are incomplete, and when workers cannot borrow or lend so as to smooth their consumption. Effort cycles generate occasional large changes in earnings. These large changes are transitory, consistent with recent empirical findings.
Firm Dynamics and Residual Inequality in Open Economies * Increasing wage inequality between simi... more Firm Dynamics and Residual Inequality in Open Economies * Increasing wage inequality between similar workers plays an important role for overall inequality trends in industrialized societies. To analyze this pattern, we incorporate directed labor market search into a dynamic model of international trade with heterogeneous firms and homogeneous workers. Wage inequality across and within firms results from their different hiring needs along their life cycles and the convexity of their adjustment costs. The interaction between wage posting and firm growth explains some recent empirical regularities on firm and labor market dynamics. Fitting the model to capture key features obtained from German linked employer-employee data, we investigate how falling trade costs and institutional reforms interact in shaping labor market outcomes. Focusing on the period 1996-2007, we find that neither trade nor key features of the Hartz labor market reforms account for the sharp increase in residual inequality observed in the data. By contrast, inequality is highly responsive to the increase in product market competition triggered by domestic regulatory reform.
for their comments. Julien Prat acknowledges the support of the Investissements d'Avenir grant (A... more for their comments. Julien Prat acknowledges the support of the Investissements d'Avenir grant (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.
Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneit... more Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity * We introduce search unemployment à la Pissarides into Melitz' (2003) model of trade with heterogeneous firms. We allow wages to be individually or collectively bargained and analytically solve for the equilibrium. We find that the selection effect of trade influences labor market outcomes. Trade liberalization lowers unemployment and raises real wages as long as it improves aggregate productivity net of transport costs. We show that this condition is likely to be met by a reduction in variable trade costs or the entry of new trading countries. On the other hand, the gains from a reduction in fixed market access costs are more elusive. Calibrating the model shows that the positive impact of trade openness on employment is significant when wages are bargained at the individual level but much smaller when wages are bargained at the collective level.
Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la ... more Cet article propose une analyse économique des stablecoins mettant en évidence les liens avec la finance traditionnelle. Même s'il existe des stablecoins dont l'arrimage est garanti par un tiers de confiance, cet article se concentre principalement sur les stablecoins gérés directement par un système d'incitations sur une blockchain décentralisée. Nous mettons en évidence les enjeux de gouvernance et de liquidation des stablecoins décentralisés, qui sont au coeur du système de maintien de leur valeur. Enfin, nous discutons des risques associés à ces stablecoins, notamment les mécanismes entraînant une perte de stabilité.
We construct and estimate by maximum likelihood an equilibrium search model where wages are set b... more We construct and estimate by maximum likelihood an equilibrium search model where wages are set by Nash bargaining and idiosyncratic productivity follows a geometric Brownian motion. The proposed framework enables us to endogenize job destruction and to estimate the rate of learning-by-doing. Although the range of the observations is not independent of the parameters, we establish that the estimators satisfy asymptotic normality. The structural model is estimated using Current Population Survey data on accepted wages and employment durations. We show that it captures almost perfectly the joint distribution of wages and job spells. We find that the rate of learning-by-doing has an important positive effect on aggregate output and a small impact on employment.
We characterize optimal redistribution in a dynastic family model with human capital. We show how... more We characterize optimal redistribution in a dynastic family model with human capital. We show how a government can improve the trade-o¤ between equality and incentives by changing the amount of observable human capital. We provide an intuitive decomposition for the wedge between human-capital investment in the laissez faire and the social optimum. This wedge di¤ers from the wedge for bequests because human capital carries risk: its returns depend on the non-diversi…able risk of children's ability. Thus, human capital investment is encouraged more than bequests in the social optimum if human capital is a bad hedge for consumption risk.
We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power ... more We propose a model which uses the Bitcoin/US dollar exchange rate to predict the computing power of the Bitcoin network. We show that free entry places an upper-bound on mining revenues and we devise a structural framework to measure its value. Calibrating the model's parameters allows us to accurately forecast the evolution of the network computing power over time. We establish the accuracy of the model through out-of-sample tests and investigation of the entry rule. JEL-Codes: D410, L100.
Journal of the European Economic Association, Feb 1, 2018
Wage inequality between similar workers has been on the rise in many rich countries. Recent empir... more Wage inequality between similar workers has been on the rise in many rich countries. Recent empirical research suggests that heterogeneity in firm characteristics is crucial to understand wage dispersion. Lower trade costs as well as labor and product market reforms are considered critical drivers of inequality dynamics. We ask how these factors affect wage dispersion and how much of their effect on inequality is attributable to changes in wage dispersion between and within firms. To tackle these questions, we incorporate directed job search into a dynamic model of international trade where wage inequality results from the interplay of convex adjustment costs with firms' different hiring needs along their life cycles. Fitting the model to German linked employer-employee data for the years 1996-2009, we find that firm heterogeneity explains about half of the surge in inequality. The most important mechanism is tougher product market competition driven by domestic product market deregulation and, indirectly, by international trade.
Investment in reputation responds positively to news shocks and to current aggregate shocks when ... more Investment in reputation responds positively to news shocks and to current aggregate shocks when they are autocorrelated. Idiosyncratic risk is contractionary and reduces the response to aggregate shocks. In this sense the rise in idiosyncratic risk can explain the great moderation -- the two have happened roughly at the same time. The greater cyclicality of durables can also be explained with this mechanism because durables have greater technological products and firms making them have more prove by exerting effort.
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