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Journal Article
Bailouts
Green, Edward J. (2010-01)
Despite the cogent criticism that "bailing out" insolvent firms creates moral hazard, bailouts often occur in the aftermath of bank runs and other financial crises. In an environment where it is economically efficient to make illiquid investments, and where investors have private information regarding their respective liquidity risks, the investment contract must satisfy an incentive constraint. Limited liability tightens this constraint under laissez faire. In principle, government bailouts of insolvent firms might undo this adverse effect of limited liability. A theoretical example is ...
Economic Quarterly , Volume 96 , Issue 1Q , Pages 11-32

Working Paper
Universal Basic Income versus Unemployment Insurance
Pallage, Stéphane; Fabre, Alice; Zimmermann, Christian (2014-11-14)
In this paper we compare the welfare effects of unemployment insurance (UI) with an universal basic income (UBI) system in an economy with idiosyncratic shocks to employment. Both policies provide a safety net in the face of idiosyncratic shocks. While the unemployment insurance program should do a better job at protecting the unemployed, it suffers from moral hazard and substantial monitoring costs, which may threaten its usefulness. The universal basic income, which is simpler to manage and immune to moral hazard, may represent an interesting alternative in this context. We work within a ...
Working Papers , Paper 2014-47

Working Paper
Designing Unemployment Insurance for Developing Countries
Espino, Emilio; Sanchez, Juan M.; Cirelli, Fernando (2020-09-10)
The high incidence of informality in the labor markets of middle-income economies challenges the provision of unemployment protection. We show that, despite informational frictions, introducing an unemployment insurance savings account (UISA) system may provide substantial benefits. This system improves welfare by providing insurance to the unemployed and creating incentives to work in the formal sector. The optimal scheme generates a reduction in unemployment (from 4 to 3 percent), an increase in formality (from 68 to 72 percent), and a rise in total output (by 4 percent). Overall, ...
Working Papers , Paper 2018-006

Working Paper
Optimal Social Insurance and Rising Labor Market Risk
Scheffel, Martin; Krebs, Tom (2019-02-01)
This paper analyzes the optimal response of the social insurance system to a rise in labor market risk. To this end, we develop a tractable macroeconomic model with risk-free physical capital, risky human capital (labor market risk) and unobservable effort choice affecting the distribution of human capital shocks (moral hazard). We show that constrained optimal allocations are simple in the sense that they can be found by solving a static social planner problem. We further show that constrained optimal allocations are the equilibrium allocations of a market economy in which the government ...
Opportunity and Inclusive Growth Institute Working Papers , Paper 18

Working Paper
The Bronx Is Burning: Urban Disinvestment Effects of the Fair Access to Insurance Requirements
Lin, Jeffrey; You, Wei; Hartley, Daniel; Ellen, Ingrid Gould (2025-05-19)
We study the unintended effects of Fair Access to Insurance Requirements (FAIR) plans developed by 26 states in the 1960s to address insurance redlining in urban neighborhoods. FAIR plans’ problematic features included prohibitions on considering environmental hazards in underwriting, mandatory insurer participation that diluted underwriting incentives, and payouts exceeding market values in declining areas. Using a triple-difference design comparing pre/post-FAIR periods, neighborhoods with/without likely FAIR access, and participating/nonparticipating states, we find that FAIR ...
Working Papers , Paper 25-16

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
On the Optimality of Differential Asset Taxation
Phelan, Tom (2019-08-29)
How should a utilitarian government balance redistributive concerns with the need to provide incentives for business creation and investment? Should they tax business profits, the (risk-free) savings of owners, or some combination of both? To address this question, this paper presents a model in which the desirability of differential asset taxation emerges endogenously from the presence of agency frictions. I consider an environment in which entrepreneurs hire workers and rent capital to produce output subject to privately observed shocks and have the ability to both divert capital to private ...
Working Papers , Paper 19-17

Speech
Some observations about policy lessons from the crisis
Plosser, Charles I. (2009-12-04)
Presented by Charles I. Plosser, President and Chief Executive Officer, Federal Reserve Bank of Philadelphia, The Philadelphia Fed Policy Forum: Policy Lessons from the Economic and Financial Crisis, December 4, 2009
Speech , Paper 32

Speech
Housing and the economic recovery
Dudley, William (2012)
Remarks at the New Jersey Bankers Association Economic Forum, Iselin, New Jersey.
Speech , Paper 73

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