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Author:Grochulski, Borys 

Briefing
Real Estate Commissions and Home Search Efficiency

In the U.S. residential housing market, homebuyers' agents typically offer free house showings and collect a commission equal to 3 percent of the price of the home bought by their clients. Our analysis shows that, by deviating from cost basis, this compensation structure may lead to elevated home prices, overused agent services and prolonged home searches. We explain that shifting to a simple a la carte compensation structure may improve home search efficiency and social welfare.
Richmond Fed Economic Brief , Volume 24 , Issue 08

Journal Article
Saving for Retirement with Job Loss Risk

This article studies a tractable theoretical model of optimal consumption and saving decisions with endogenous retirement. Particular attention is paid to the impact of an increase in the risk of losing one?s job on the optimal path of consumption and wealth accumulation. Even if one does not actually lose their job, an increase in the risk of a job loss is by itself sufficient to cause lower consumption, higher saving, and, through faster retirement, lower labor supply.
Economic Quarterly , Issue 1Q , Pages 45-81

Journal Article
Distortionary taxation for efficient redistribution

This article uses a simple model to review the economic theory of efficient redistributive taxation. The model economy is a Lucas-tree economy, in which income comes from a stock of productive capital. Agents, who own the capital stock, are heterogenous with respect to their preference for early versus late consumption. A competitive capital market, in equilibrium, supports a unique Pareto-efficient allocation of consumption among the agents, i.e., the First Welfare Theorem holds. The equilibrium allocation represents one efficient division of the total gains from trade that are available in ...
Economic Quarterly , Volume 95 , Issue Sum , Pages 235-267

Working Paper
Contingent Debt and Performance Pricing in an Optimal Capital Structure Model with Financial Distress and Reorganization

Building on the trade-off between agency costs and monitoring costs, we develop a dynamic theory of optimal capital structure with financial distress and reorganization. Costly monitoring eliminates the agency friction and thus the risk of inefficient liquidation. Our key assumption is that monitoring cannot be applied instantaneously. Rather, transitions between agency and monitoring are subject to search frictions. In the optimal contract, the firm seeks a monitoring opportunity whenever it is financially distressed, i.e., when the risk of liquidation is high. If a monitoring opportunity ...
Working Paper , Paper 18-17

Working Paper
Market-based incentives

We study optimal incentives in a principal-agent problem in which the agent's outside option is determined endogenously in a competitive labor market. In equilibrium, strong performance increases the agent's market value. When this value becomes sufficiently high, the threat of the agent's quitting forces the principal to give the agent a raise. The prospect of obtaining this raise gives the agent an incentive to exert effort, which reduces the need for standard incentives, like bonuses. In fact, whenever the agent's option to quit is close to being "in the money," the market-induced ...
Working Paper , Paper 13-05

Journal Article
Opinion : When disclosure is not enough

Econ Focus , Volume 11 , Issue Fall , Pages 52

Journal Article
Wealth Effects with Endogenous Retirement

In this article, we study wealth effects, i.e., the response of consumption to exogenous changes in wealth. We use a consumption-saving model with endogenous retirement to show that the endogenous response of the value of a worker's human capital to changes in her wealth helps to account for the weak wealth effects observed in the data.
Economic Quarterly , Issue 3Q , Pages 173-200

Journal Article
Optimal nonlinear income taxation with costly tax avoidance

Economic Quarterly , Volume 93 , Issue Win , Pages 77-109

Journal Article
Limits to redistribution and intertemporal wedges : implications of Pareto optimality with private information

Numerous recent studies on macroeconomic policy--including monetary policy and tax policy--have incorporated private information in their models of the economy. In such models, characterization of Pareto-optimal allocations is an important step of analysis. In this article, we study Pareto optima in a simple model economy with heterogeneous agents. We characterize and compare all Pareto-optimal allocations both with and without private information. We also demonstrate the limits to redistribution and intertemporal distortions that arise as implications of Pareto optimality with private ...
Economic Quarterly , Volume 94 , Issue Spr , Pages 173-196

Briefing
Federal Reserve MBS Purchases in Response to the COVID-19 Pandemic

The Federal Reserve’s purchases of agency mortgage-backed securities — launched in response to financial disruptions caused by COVID-19 — appear to have restored smooth market function supporting the continued flow of credit to mortgage borrowers. However, the amount of purchases necessary to achieve this outcome raises concerns about the resilience of private-market structures that perform this critically important function
Richmond Fed Economic Brief , Volume 20 , Issue 08 , Pages 5pgs.

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