PhD, University of Minnesota, 2009; MA, University of Sao Paulo, 2002.
Abstract: This paper studies the Rothschild and Stiglitz (1976) adverse selection environment, relaxing the assumption of exclusivity of insurance contracts. Agents can engage in multiple insurance contracts simultaneously, and the terms of these contracts are not observed by other _rms. Insurance providers behave non-cooperatively and compete offering menus of insurance contracts from an unrestricted contract space. We derive conditions under which a separating equilibrium exists and fully characterize it. The unique equilibrium allocation consists of agents with a lower probability of accident purchasing no insurance and agents with higher accident probability buying the actuarially-fair level of insurance. The equilibrium allocation also constitutes a linear price schedule for insurance. To sustain the equilibrium allocation, firms must offer latent contracts. These contracts are necessary to prevent deviations by other firms; in particular they can prevent cream-skimming strategies. As in Rothschild and Stiglitz (1976), pooling equilibrium still fails to exists.
Pricila Maziero and Laurence Ales (Working), Non-exclusive Dynamic Contracts, Competition, and the Limits of Insurance.
Abstract: We study how the presence of non-exclusive contracts limits the amount of insurance provided in a decentralized economy. We consider a dynamic Mirrleesian economy in which agents are privately informed about idiosyncratic labor productivity shocks. Agents sign privately observable insurance contracts with multiple firms (i.e., they are non-exclusive), which include both labor supply and savings aspects. Firms have no restriction on the contracts they can offer, interact strategically. In equilibrium, contrary to the case with exclusive contracts, a standard Euler equation holds, the marginal rate of substitution between consumption and leisure is equated to the worker's marginal productivity. Also, each agent receives zero net present value of transfers. To sustain this equilibrium, more than one firm must be active and must also offer latent contracts to deter deviations to more profitable contingent contracts. In this environment, the non-observability of contracts removes the possibility of additional insurance beyond self-insurance. To test the model, we allow firms to observe contracts at a cost. The model endogenously divides the population into agents that are not monitored and have access to non-exclusive contracts and agents that have access to exclusive contracts. We use US survey data and find that high school graduates satisfy the optimality conditions implied by the non-exclusive contracts while college graduates behave according to the second group.
Abstract: We study the quantitative properties of constrained efficient allocations in an environment where risk sharing is limited by the presence of private information. We consider a life cycle version of a standard Mirrlees economy where shocks to labor productivity have a component that is public information and one that is private information. The presence of private shocks has important implications for the age profiles of consumption and hours. First, they introduce an endogenous dispersion of continuation utilities. As a result, consumption inequality rises with age even if the variance of the shocks does not. Second, they introduce an endogenous rise of the distortion on the marginal rate of substitution between consumption and leisure over the life cycle. This is because, as agents age, the ability to properly provide incentives for work must become less and less tied to promises of benefits (through either increased leisure or consumption) in future periods. Both of these features are also present in the data. We look at the data through the lens of our model and estimate the fraction of labor productivity that is private information. We find that for the model and data to be consistent, all of the shocks to labor productivities must be private information.
Abstract: Prior to 1863, state-chartered banks in the United States issued notes–dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at a discount outside the local area. These discounts varied by both the location of the bank and the location where the discount was being quoted. Further, these discounts were asymmetric across locations, meaning that the discounts quoted in location A on the notes of banks in location B generally differed from the discounts quoted in location B on the notes of banks in location A. Also, discounts generally increased when banks suspended payments on their notes. In this paper we construct a random matching model to qualitatively match these facts about banknote discounts. To attempt to account for locational differences, the model has agents that come from two distinct locations. Each location also has bankers that can issue notes. Banknotes are accepted in exchange because banks are required to produce when a banknote is presented for redemption and their past actions are public information. Overall, the model delivers predictions consistent with the behavior of discounts.
FNCE 101 is an intermediate-level course in macroeconomics and the global economy, including topics in monetary and international economics. The goal is to provide a unified framework for understanding macroeconomic events and policy, which govern the global economic environment of business. The course analyzes the determinants and behavior of employment, production, demand and profits; inflation, interest rates, asset prices, and wages; exchange rates and international flows of goods and assets; including the interaction of the real economy with monetary policy and the financial system. The analysis is applied to current events, both in the US and abroad. HONORS FNCE 101 is only offered in the Fall semester. Registration for this class is through an application process. Please go to: https:fnce.wharton.upenn.edu/programs-course-applications, This course presents the analysis of macroeconomic theory with a current events perspective. The material in the class concentrates on lecture notes, which are the primary learning source, and readings from a course packet of articles drawn from journals, magazines, newspapers, and other economic publications. The material covered will include: (1) Economic Statistics, GDP, Price Indices,Productivity and the nature of the business cycle, (2) The government budget and Social Security, (3) Monetary policy, The Fed and other Central Banks,(4) Interest rates - indexed bonds and ther term structure (5) Aggregate Demand and the determination of income and interest rate, (6) Money and Inflation - the Velocity Approach, (7) Reaction of Financial Markets to economic data,(8) Inflation, inflationary expectations and the Phillips Curve,(9) Supply-side shocks and macro-dynamics, (10) International Balance of Payments, the current account and capital flows, (11) Determination of Exchange Rates, exchange rate systems, purchasing power and interest rate parity.
This is a doctoral level course on macroeconomics, with special emphasis on intertemporal choice under uncertainty and topics related to finance. Topics include: optimal consumption and saving, the stochastic growth model, q-theory of investment, (incomplete) risk sharing and asset pricing. The course will cover and apply techniques, including dynamic programming, to solve dynamic optimization problems under uncertainty. Numerical solution methods are also discussed.