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Working Paper
Private Information and Optimal Infant Industry Protection
Riezman, Raymond; Ravikumar, B.; Zhang, Yuzhe (2024-04-18)
We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. Using a mechanism-design approach, we solve for the optimal protection policy that induces the industry to reveal its true cost. We show that (i) the optimal protection, measured by infant industry output, declines over time and is less than that under public information, (ii) the optimal protection policy is ...
Working Papers , Paper 2022-013

Working Paper
Private Information and Optimal Infant Industry Protection
Riezman, Raymond; Ravikumar, B.; Zhang, Yuzhe (2022-05-20)
We study infant industry protection using a dynamic model in which the industry's cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. We use a mechanism-design approach to induce the industry to reveal its true cost. We show that (i) the optimal protection, measured by infant industry output, declines over time and is less than that under public information, (ii) the optimal protection policy is time consistent under public information but not ...
Working Papers , Paper 2022-013

Working Paper
Employment Dynamics in a Signaling Model with Workers' Incentives
Weingarden, Alison E. (2017-04)
Many firms adjust employment in a "lumpy" manner -- infrequently and in large bursts. In this paper, I show that lumpy adjustments can arise from concerns about the incentives of remaining workers. Specifically, I develop a model in which a firm's productivity depends on its workers' effort and workers' income prospects depend on the firm's profitability. I use this model to analyze the consequences of demand shocks that are observed by the firm but not by its workers, who can only try to infer the firm's profitability from its employment decisions. I show that the resulting signaling model ...
Finance and Economics Discussion Series , Paper 2017-040

Working Paper
Fiscal Forward Guidance: A Case for Selective Transparency
Waki, Yuichiro; Fujiwara, Ippei (2017-06-01)
Should the fiscal authority use forward guidance to reduce future policy uncertainty perceived by private agents? Using dynamic stochastic general equilibrium models, we examine the welfare effects of announcing future fiscal policy shocks. Analytical as well as numerical experiments show that selective transparency is desirable?announcing future fiscal policy shocks that are distortionary can be detrimental to ex ante social welfare, whereas announcing nondistortionary shocks generally improves welfare. Sizable welfare gains are found with constructive ambiguity regarding the timing of a ...
Globalization Institute Working Papers , Paper 318

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
Optimal Contracts with Reflection
Grochulski, Borys; Zhang, Yuzhe (2016-12-01)
In this paper, we show that whenever the agent's outside option is nonzero, the optimal contract in the continuous-time principal-agent model of Sannikov (2008) is reflective at the lower bound. This means the agent is never terminated or retired after poor performance. Instead, the agent is asked to put zero effort temporarily, which brings his continuation value up. The agent is then asked to resume effort, and the contract continues. We show that a nonzero agent's outside option arises endogenously if the agent is allowed to quit and find a new firm (after a random search time of finite ...
Working Paper , Paper 16-14

Working Paper
Private Information and Optimal Infant Industry Protection
Riezman, Raymond; Ravikumar, B.; Zhang, Yuzhe (2026-03-08)
We study infant industry protection using a dynamic model in which the industry’s cost is initially higher than that of foreign competitors. The industry can stochastically lower its cost via learning by doing. Whether the industry has transitioned to low cost is private information. Using a mechanism-design approach, we solve for the optimal protection policy that induces the industry to reveal its true cost. We show that (i) optimal protection, measured by infant industry output, declines over time and is less than that under public information and (ii) eventual viability of the infant ...
Working Papers , Paper 2022-013

Report
Bayesian Persuasion and Cryptography
Azar, Pablo D. (2026-05-01)
Bayesian Persuasion assumes that a sender can commit ex ante to an information structure and then release the realized signal ex post. This paper asks when that commitment technology can itself be implemented. After observing the state, a sender who also observes the realized signal can suppress unfavorable draws even if every disclosed signal is verifiably correct. We define Receiver-Private Certified Bayesian Persuasion, a benchmark in which the receiver obtains the signal and a certificate of correct generation while the sender does not learn the realized branch of the experiment. The main ...
Staff Reports , Paper 1194

Working Paper
The boy who cried bubble: public warnings against riding bubbles
Asako, Yasushi; Ueda, Kozo (2014-01-16)
Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is ...
Globalization Institute Working Papers , Paper 167

Working Paper
FOMC Responses to Calls for Transparency
Acosta, Miguel (2015-07-10)
I apply latent semantic analysis to Federal Open Market Committee (FOMC) transcripts and minutes from 1976 to 2008 in order to analyze the Fed's responses to calls for transparency. Using a newly constructed measure of the transparency of deliberations, I study two events that define markedly different periods of transparency over this 32-year period. First, the 1978 Humphrey-Hawkins Act increased the degree to which the FOMC used meeting minutes to convey the content of its meetings. Historical evidence suggests that this increased transparency reflected a response to the Act's requirement ...
Finance and Economics Discussion Series , Paper 2015-60

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