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Working Paper
Reforming the US Long-Term Care Insurance Market
Braun, R. Anton; Kopecky, Karen A. (2024-08-14)
Nursing home risk is significant and costly. Yet, most Americans pay for long-term care (LTC) expenses out-of-pocket. This chapter examines reforms to both public and private LTCI provision using a structural model of the US LTCI market. Three policies are considered: universal public LTCI, no public LTCI coverage, and a policy that exempts asset holdings from the public insurance asset test on a dollar-for-dollar basis with private LTCI coverage. We find that this third reform enhances social welfare and creates a vibrant private LTCI market while preserving the safety net provided by public ...
Working Papers , Paper 24-17

Working Paper
Investment and Bilateral Insurance
Espino, Emilio; Sanchez, Juan M.; Kozlowski, Julian (2013-01-02)
Private information may limit insurance possibilities when two agents get together to pool idiosyncratic risk. However, if there is capital accumulation, bilateral insurance possibilities may improve because misreporting distorts investment. We show that if one of the Pareto weights is sufficiently large, that agent does not have incentives to misreport. This implies that, under some conditions, the full information allocation is incentive compatible when agents have equal Pareto weights. In the long run, either one of the agents goes to immiseration, or both agents’ lifetime utilities are ...
Working Papers , Paper 2013-001

Working Paper
Banker Compensation, Relative Performance, and Bank Risk
Prescott, Edward Simpson; Jarque, Arantxa (2019-11-05)
A multi-agent, moral-hazard model of a bank operating under deposit insurance and limited liability is used to analyze the connection between compensation of bank employees (below CEO) and bank risk. Limited liability with deposit insurance is a force that distorts effort down. However, the need to increase compensation to risk-averse employees in order to compensate them for extra bank risk is a force that reduces this effect. Optimal contracts use relative performance and are implementable as a wage with bonuses tied to individual and firm performance. The connection between pay for ...
Working Papers , Paper 19-20

Working Paper
Market Integration and Bank Risk-Taking
Dam, Kaniska; Sengupta, Rajdeep (2020-12-30)
Using a workhorse model of bank competition and risk-taking, we show that increased competition from market integration affects bank risk-taking in ways beyond a simple increase in the number of competitor banks. Research has shown that increased competition in the form of an increase in the number of competitor banks can reduce risk-taking—the bank-competitor effect. Market integration not only increases the number of banks, but also the number of potential customers (depositors and borrowers) available to each bank. Increases in the potential customer base induces banks to behave more ...
Research Working Paper , Paper RWP 20-21

Working Paper
Navigating Higher Education Insurance: An Experimental Study on Demand and Adverse Selection
Balakrishnan, Sidhya; Bettinger, Eric; Kofoed, Michael S.; Ritter, Dubravka; Webber, Douglas A.; Aksu, Ege; Hartley, Jonathan S. (2024-04-19)
We conduct a survey-based experiment with 2,776 students at a non-profit university to analyze income insurance demand in education financing. We offered students a hypothetical choice: either a federal loan with income-driven repayment or an income-share agreement (ISA), with randomized framingof downside protections. Emphasizing income insurance increased ISA uptake by 43%. We observe that students are responsive to changes in contract terms and possible student loan cancellation, which is evidence of preference adjustment or adverse selection. Our results indicate that framing specific ...
Finance and Economics Discussion Series , Paper 2024-024

Working Paper
Optimal Delegation Under Unknown Bias: The Role of Concavity
Tanner, Noam (2018-03-30)
A principal is uncertain of an agent's preferences and cannot provide monetary transfers. The principal, however, does control the discretion granted to the agent. In this paper, we provide a simple characterization of when it is optimal for the principal to screen by offering different terms of discretion to the agent. When the principal's utility is sufficiently concave, it is optimal for the principal to pool and to offer all agents the same discretion. Thus, for any number of agents and any distribution over agent preferences, the optimal contract is simple: the principal sets a cap and ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-1

Working Paper
Financial Fragility and Over-the-Counter Markets
Sultanum, Bruno (2016-04-13)
This paper studies the interaction between financial fragility and over-the-counter markets. In the model, the financial sector is composed of a large number of investors divided into different groups, which are interpreted as financial institutions, and a large number of dealers. Financial institutions and dealers trade assets in an over-the-counter market la Duffie et al. (2005) and Lagos and Rocheteau (2009). Investors are subject to privately observed preference shocks, and financial institutions use the balanced team mechanism, proposed by Athey and Segal (2013), to implement an ...
Working Paper , Paper 16-4

Journal Article
Stylized Facts on the Organization of Small Business Partnerships
Espino, Emilio; Sanchez, Juan M.; Kozlowski, Julian (2016)
The authors study the internal organization of small business partnerships and focus on the number of owners and ownership structure and the dynamics of these variables. They find that partnerships tend to have a small number of owners with equal distribution of ownership shares. Moreover, while partnerships with equally distributed shares tend to keep this distribution constant, those with unequally distributed shares tend to move toward more equal distribution over time. The authors highlight that these facts are in line with the theory of private information in small business partnerships ...
Review , Volume 98 , Issue 4 , Pages 297-310

Discussion Paper
The Central Banking Beauty Contest
Cisternas, Gonzalo; Kolb, Aaron (2024-09-30)
Expectations can play a significant role in driving economic outcomes, with central banks factoring market sentiment into policy decisions and market participants forming their own assumptions about monetary policy. But how well do central banks understand the expectations of market participants—and vice versa? Our model, developed in a recent paper, features a dynamic game between (i) a monetary authority that cannot commit to an inflation target and (ii) a set of market participants that understand the incentives created by that credibility problem. In this post, we describe the game, a ...
Liberty Street Economics , Paper 20240930

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