Research

This paper develops a search theoretic model of employment contracts with repeated moral hazard and analyzes how workers' incentives inside a firm interact with their mobility in the labor market. In equilibrium, the firm's incentives to induce effort as well as to retain the worker generate an optimal long-term wage contract that has an increasing wage-tenure profile. The optimal incentive compatible effort level and the resulting worker productivity both increase with tenure. In addition, the theory makes predictions about how the contractual structure interacts with macroeconomic behaviors. In particular, it highlights a mechanism by which incentives and search frictions generate workers' career concerns and productivity dispersion among ex ante identical agents. Moreover, it shows that a temporary reduction in workers' cost to exerting effort propagates through equilibrium dynamics and yields persistent effects on the economy's average productivity.

This paper characterizes the equilibrium of a two-period advice game when the informed agent has reputational and career concerns. The model extends Morris' (2001) Political Correctness paper, and at the end of the first period, the decision maker can choose whether to retain his advisor or fire him and hire a new advisor from the outside market. This possible replacement creates career concern for the advisor, and he has an incentive to lie for maintaining the position. If career concern is very important, the unique equilibrium is the one in which good advisor gives the politically correct advice regardless of the signal observed. Even in such a case, I find a condition under which the principal can still be better off by offering a random replacement mechanism such that a good advisor truthfully reports the signal despite the risk of being fired.

This paper studies a long-term insurance contracting problem and asks how the possibility of leaving for another contract affects the incentive structure of the current contract. It also analyzes how such mobility affects the household's long-term welfare profile and, more generally, how the natural desire for mobility affects wealth inequality in the economy. We construct a model of repeated adverse selection where households receive a stochastic endowment each period and moneylenders offer a long-term insurance contract. Even if already on a contract, a household is allowed to look for another contract in the frictional insurance market. This frictional on-the-contract search endogenously assigns otherwise identical households to contracts that offer different values. The theory suggests that allowing households to search on the contract decreases the discipline of contracts and increases wealth inequality.

Last updated: November 9, 2009


Research Papers
	"Repeated Moral Hazard with Worker Mobility via Directed On-the-Job Search" (Job Market Paper)
	This paper develops a search theoretic model of employment contracts with repeated moral hazard and analyzes how workers' incentives inside a firm interact with their mobility in the labor market. In equilibrium, the firm's incentives to induce effort as well as to retain the worker generate an optimal long-term wage contract that has an increasing wage-tenure profile. The optimal incentive compatible effort level and the resulting worker productivity both increase with tenure. In addition, the theory makes predictions about how the contractual structure interacts with macroeconomic behaviors. In particular, it highlights a mechanism by which incentives and search frictions generate workers' career concerns and productivity dispersion among ex ante identical agents. Moreover, it shows that a temporary reduction in workers' cost to exerting effort propagates through equilibrium dynamics and yields persistent effects on the economy's average productivity.
	"An Advice Game with Reputational and Career Concerns"
	This paper characterizes the equilibrium of a two-period advice game when the informed agent has reputational and career concerns. The model extends Morris' (2001) Political Correctness paper, and at the end of the first period, the decision maker can choose whether to retain his advisor or fire him and hire a new advisor from the outside market. This possible replacement creates career concern for the advisor, and he has an incentive to lie for maintaining the position. If career concern is very important, the unique equilibrium is the one in which good advisor gives the politically correct advice regardless of the signal observed. Even in such a case, I find a condition under which the principal can still be better off by offering a random replacement mechanism such that a good advisor truthfully reports the signal despite the risk of being fired.
	"A Welfare Analysis of Child Labour: Dynamic Implications"


Research in Progress
	"Repeated Adverse Selection and Directed Search on the Contract" with Shouyong Shi
	This paper studies a long-term insurance contracting problem and asks how the possibility of leaving for another contract affects the incentive structure of the current contract. It also analyzes how such mobility affects the household's long-term welfare profile and, more generally, how the natural desire for mobility affects wealth inequality in the economy. We construct a model of repeated adverse selection where households receive a stochastic endowment each period and moneylenders offer a long-term insurance contract. Even if already on a contract, a household is allowed to look for another contract in the frictional insurance market. This frictional on-the-contract search endogenously assigns otherwise identical households to contracts that offer different values. The theory suggests that allowing households to search on the contract decreases the discipline of contracts and increases wealth inequality.
	"Unemployment Insurance, Moral Hazard, and Aggregate Productivity"
	"Optimal Retention Strategies for Wage-Tenure Contracts"