Research papers:


Extreme Incentives

Slides: pdf



Moral Hazard with Conterfeit Signals

In many moral hazard problems, the principal evaluates the agent's performance based on signals which the agent may suppress and replace with counterfeits. This form of fraud may affect the design of optimal contracts drastically. For example, if fraud is costless and produces perfect counterfeits, then there is complete market failure. This paper studies how the possibility of fraud affects the design of incentives. I show that in optimal contracts, the principal deters all fraud, and does so by two complementary mechanisms. First, the principal punishes signals that are suspicious, i.e. appear counterfeit. Second, the principal is lenient on bad signals that the agent could suppress, but does not.

Extended abstract: pdf

Full paper: pdf



A General and Intuitive Envelope Theorem

with Carlo Strub

Previous envelope theorems establish differentiability of value functions in convex settings. Our envelope theorem applies to all functions whose derivatives appear in first-order conditions, and in non-convex settings. For example, in Stackelberg games, the leader's first-order condition involves the derivative of the follower's policy. Similarly, we differentiate (i) the borrower's value function and default cut-off policy function in an unsecured credit economy, (ii) the firm's value function in a capital adjustment problem with fixed costs, and (iii) the households' value functions in insurance arrangements with indivisible goods. Our theorem accommodates optimization problems involving discrete choices, infinite horizon stochastic dynamic programming, and Inada conditions.

Full paper: pdf

Old draft pdf

Older draft (circulated as Envelope Theorems for Non-Smooth and Non-Concave Optimization) pdf



Money Cycles

with Carlo Strub

in International Economic Review, 2016

Operating overheads are widespread and lead to concentrated bursts of activity. To transfer resources between active and idle spells, agents demand financial assets. Futures contracts and lotteries are unsuitable, as they have substantial overheads of their own. We show that money -- under efficient monetary policy -- is a liquid asset that leads to efficient allocations. Under all other policies, agents follow inefficient “money cycle” patterns of saving, activity, and inactivity. Agents spend their money too quickly -- a “hot potato effect of inflation”. We show that inflation can stimulate inefficiently high aggregate output.

Full paper: pdf

Computer code for drawing the figures: R code



Corrigendum to "Aggregation and Linearity in the Provision of Intertemporal Incentives"

Note: pdf



Other Research Publications:

Human Sources: The Journalist and the Whistle-blower in the Digital Era

(with Suelette Dreyfus, Reeva Lederman, A.J. Brown, Simon Milton, Marcia P. Miceli, Rachelle Bosua, and Jessie Schanzle.)

This book chapter is part of the World Online Whistleblowing Survey project, for which I was a research assistant. The chapter appears in a journalism textbook edited by Tanner and Richardson (2013), Journalism Research and Investigation in a Digital World published by Oxford University Press.

Full chapter: pdf