Optimal State-Contingent Unemployment Insurance

Since the probability of finding a job is affected not only by individual effort but also by the aggregate state of the economy, designing unemployment insurance payments conditional on the business cycle could be valuable. This paper answers a fundamental question related to this issue: How should the payments vary with the aggregate state of the economy?Unemployment Insurance; Aggregate Fluctuations; Recursive Contracts and Moral Hazard

Risk sharing, investment, and incentives in the neoclassical growth model

We first study growth and risk sharing in a stochastic growth model with preference shocks and two risk-averse agents. In periods in which one of the agents needs extra consumption (insurance), it is socially optimal to reduce the consumption of the other agent (redistribution) and also to accumulate fewer resources for the future (disinvestment). The latter hurts growth while the former only affects the distribution of aggregate consumption. Then, to analyze if information matters, we study if the same allocation would be implementable under private information. We find that it depends on the state of the economy. The provision of insurance that is implemented by reducing capital accumulation deteriorates the prospects of all agents in the economy and thus helps to alleviate informational frictions. The size of redistribution versus disinvestment and the outlook of economic growth at the time of disinvestment affects the possibilities of implementing the best possible allocation when the preference shock is private information. Therefore, we conjecture that under private information the best allocation compatible with incentives would tend to hurt growth and to concentrate resources in agents with private information in order to provide incentives to report the shock truthfully.Business cycles ; Economic growth

First-principles investigation of the Ni-Fe-Al system

By combining ab-initio electron theory and statistical mechanics, the physical properties of the ternary intermetallic system Ni-Fe-Al in the ground state and at finite temperatures were investigated. The Ni-Fe-Al system is not only of high technological interest, but exhibits also rich physics, e.g., a delicate interplay between structure and magnetism over a wide composition range and substantial electronic correlations which is challenging for modern electronic structure methods. The new Stuttgart ab-initio mixed-basis pseudopotential code in the generalized gradient approximation (GGA) was used to determine the energetics in the ground state. Therewith, in combination with the cluster expansion (CE) method a representation of the energy landscape at $T$=0 over the whole Gibbs triangle was elaborated. At finite temperatures, the cluster variation method (CVM) in tetrahedron approximation was employed in order to calculate the ab-initio ternary phase diagram on the bcc and fcc lattice. Thereby, a miscibility gap in the ternary B2 phase was theoretically verified.Comment: 27 page

The U.S. establishment-size distribution: secular changes and sectoral decomposition

This article studies the U.S. establishment-size distribution from 1974–2006. The main findings are: (i) the size of the “representative” establishment is relatively constant; (ii) the size distribution has become slightly more evenly distributed; (iii) the relative stability of aggregate statistics obscures important movements in the manufacturing and service sectors; (iv) both intra- and intersector changes contribute to aggregate changes; and (v) changes in the size distribution of firms are similar to those of establishments. These findings will be useful to calibrate and test models with firms/establishments heterogeneity.Labor market

Financing Development: The Role of Information Costs

How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.

Financing Development: The Role of Information Costs

To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into the standard growth model. The framework has two novel ingredients. First, firms differ in the risk/return combinations that they offer. Second, the efficacy of monitoring depends upon the amount of resources invested in the activity. A financial theory of firm size results. Undeserving firms are over financed, deserving ones under funded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive firms toward productive ones. With continued progress, the economy approaches its first-best equilibrium. An extended version of the paper containing some quantitative analysis is available at: http://ssrn.com/abstract=996263financial intermediation, economic development, costly state verification, firm size

Financing Development: The Role of Information Costs

How does technological progress in financial intermediation affect the economy? To address this question a costly-state verification framework is embedded into a standard growth model. In particular, financial intermediaries can invest resources to monitor the returns earned by firms. The inability to monitor perfectly leads to firms earning rents. Undeserving firms are financed, while deserving ones are under funded. A more efficient monitoring technology squeezes the rents earned by firms. With technological advance in the financial sector, the economy moves continuously from a credit-rationing equilibrium to a perfectly efficient competitive equilibrium. A numerical example suggests that finance is important for growth.

Nonequilibrium Phase Transitions in Directed Small-World Networks

Many social, biological, and economic systems can be approached by complex networks of interacting units. The behaviour of several models on small-world networks has recently been studied. These models are expected to capture the essential features of the complex processes taking place on real networks like disease spreading, formation of public opinion, distribution of wealth, etc. In many of these systems relations are directed, in the sense that links only act in one direction (outwards or inwards). We investigate the effect of directed links on the behaviour of a simple spin-like model evolving on a small-world network. We show that directed networks may lead to a highly nontrivial phase diagram including first and second-order phase transitions out of equilibrium.Comment: 4 pages, RevTeX format, 4 postscript figs, uses eps

The responses of small and large firms to tight credit shocks : the case of 2008 through the lens of Gertler and Gilchrist (1994)

Do large firms and small firms behave differently when credit becomes more costly or harder to obtain? Past research has found that small firms are more likely to be credit-constrained and thus tend to be affected more negatively than large firms during such times. Recent findings from the 2007-2009 recession, however, raise questions about the roles of small and large firms during periods of tight creditBusiness cycles ; Recessions