Non-exclusive Dynamic Contracts, Competition, and the Limits of Insurance

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 re- striction 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 con- tracts to deter deviations to more profitable contingent contracts. In this environment, the non-observability of contracts removes the possibility of additional insurance be- yond 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.

Benchmarking North Korean Economic Policies; The Lessons from Russia and China

This study attempts to provide benchmarks of North Korean institutional changes that signal the increased role of markets, looking at macroeconomic management, introduction of market-supporting policies, and provision of market-supporting infrastructure. The weight of the evidence indicates that North Korea today is an unraveling command system, which shares many features with China in 1978 or the former Soviet Union in 1985. A rising share of household purchases of food and consumer goods in informal markets at market-determined prices raises the question of whether a legal, market-oriented consumer sector is emerging. The answer depends on whether there is a legal, decentralized population of non-state producers, not merely black-market traders. Alternatively, the appearance of market-based trade may simply signal the ability of decision-makers within the state apparatus to convert their access to rationed goods at low prices into hard-currency, black-market revenues. A much more worrisome indicator for the planners is the indirect evidence that the DPRK is experiencing, not just a one-time adjustment from controlled to market prices, but a destabilizing approach to hyperinflation.