in this paper, the effect of financial liberalization on household’s budget liquidity constraint is analyzed with the use of an error correction model. financial liberalization will decline liquidity constraint, with expanding means of making future incomes available for present consumption. here a financial liberalization index for iran is defined using principal component analysis technique, ...

Contract manufacturing enables intellectual property holders to enjoy scale economies, reduce labor costs and free up capital. However, in many scenarios contract manufacturing is a double-edged sword, rife with entrenchments, threats of predation or hold up. I explore these contract manufacturing problems in a non-recursive relational contract setting. These non-recursivities appear in at leas...

This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. A well-functioning public expenditure management (PEM) system...

This note identifies a moral hazard environment in which a piecewise linear compensation scheme is optimal. Both the principal and the agent have CARA utility, mean output is increasing in the agent’s noncontractible input, and output is distributed according to a Laplace distribution, which resembles a normal distribution (e.g. it is symmetric about the mean), but has fatter tails. The key pro...

This paper shows that it is individually rational for agents in a firm to develop and exhibit status concerns. Workers are, by their choices of status concerns, able to transfer surplus from the the firm to themselves. As expected, relative concerns are shaped by the relative strengths and weaknesses of the workers in the firm. Surprisingly, a firm’s profit is reduced relative to the benchmark ...

This paper explores the effects of monitoring in contracts between an exporting firm and small agricultural producers in Madagascar. Building on a theoretical framework that incorporates both adverse selection and moral hazard, I test for the effect of monitoring of the agents by the principal on productivity, all the while including an estimate of agent-specific technical inefficiency in the r...

Optimal Use of Labor Market Policies: The Role of Job Search Assistance This paper studies the role of job search assistance programs in optimal welfare-to-work programs. The analysis is based on a framework, that allows for endogenous choice of benefit types and levels, wage taxes or subsidies, and activation measures such as monitoring and job search assistance for each period of unemployment...

A model of political contribution of dynamic common agency where state-contingent agreements must be self-enforced is considered. Two issues are mainly examined; punishment strategy on deviation and the limit and scope of implicit agreements. The punishment strategy on the principals takes a form of two-phase scheme in general and, more specifically, it is either an “Exclusion-type”, on which t...

This paper studies the problem of how to delegate the allocation of finite resources across multiple categories to an agent who has better information on their benefits. It focuses on a tractable, natural class of delegation policies that impose a floor or cap on the allocation to each category, a generalization of Holmström’s (1977) “interval controls” to multidimensional settings. The paper c...

This paper studies the intertemporal allocation of incentives in a repeated moral hazard model with reference-dependent preferences as in Kőszegi and Rabin (2009). Besides consumption utility, the agent experiences utility from the change in his beliefs about present and future effort and income. When effort plans are rational, the prospect of being disappointed by the outcome realization equal...