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Working Paper
Liquidity needs in economies with interconnected financial obligations
A model is developed in which firms in a financial system have to settle their debts to each other by using a liquid asset (or money). The question studied is how many firms must have access to this asset from outside the financial system to make sure that all debts within the system are settled. The main result is that these liquidity needs are larger when these firms are more interconnected through their debts, that is, when they borrow from and lend to more firms. Two pecuniary externalities are discussed. One is the result of paying one creditor first rather than another. The second ...
Working Paper
Minimally acceptable altruism and the ultimatum game
I suppose that people react with anger when others show themselves not to be minimally altruistic. With heterogeneous agents, this can account for the experimental results of ultimatum and dictator games. Moreover, it can account for the surprisingly large fraction of individuals who offer an even split, with parameter values that are more plausible than those required to explain outcomes in these experiments with the models of Levine (1998), Fehr and Schmidt (1999), Dickinson (2000), and Bolton and Ockenfels (2000).
Conference Paper
Cyclical wages in a search-and-bargaining model with large firms
This paper presents a complete general equilibrium model with flexible wages where the degree to which wages and productivity change when cyclical employment changes is roughly consistent with postwar U.S. data. Firms with market power are assumed to bargain simultaneously with many employees, each of whom finds himself matched with a firm only after a process of search. When employment increases as a result of reductions in market power, the marginal product of labor falls. This fall tempers the bargaining power of workers and thus dampens the increase in their real wages. The procyclical ...
Working Paper
Minimally altruistic wages and unemployment in a matching model
This paper presents a model in which firms recruit both unemployed and employed workers by posting vacancies. Firms act monopsonistically and set wages to retain their existing workers as well as to attract new ones. The model differs from Burdett and Mortensen (1998) in that its assumptions ensure that there is an equilibrium where all firms pay the same wage. The paper analyzes the response of this wage to exogenous changes in the marginal revenue product of labor. The paper finds parameters for which the response of wages is modest relative to the response of employment, as appears to be ...
Working Paper
Cyclical wages in a search and bargaining model with large firms
This paper presents a complete general equilibrium model with flexible wages, where the degree to which wages and productivity change when cyclical employment changes is roughly consistent with postwar U.S. data. Firms with market power are assumed to bargain simultaneously with many employees, each of whom finds himself matched with a firm only after a process of search. When employment increases as a result of reductions in market power, the marginal product of labor falls. This fall tempers the bargaining power of workers and thus dampens the increase in their real wages. The procyclical ...