- Matching, Wage Rigidities and Efficient Severance Pay, The B.E. Journal of Economic Analysis & Policy, Contributions, 2012, 12(1).
- When Do Firing Taxes Matter?, Economics Letters, 2007, 97(1), 24-31.
- Termination Restrictions and Investment in General Training, European Economic Review, 2005, 49(6), 1479-1499.
- Does Divorce Law Matter?, (with Paola Manzini and Marco Mariotti), Journal of the European Economic Association, 2004, 2(4), 607-633.
- Reserve Uncertainty and Speculative Attacks on Target Zones, Economics Letters, 2001, 70(2), 223-228.
- Efficiency Wage and Efficient Redundancy Pay, European Economic Review, 2000, 44(8), 1473-1490.
and Crime over the Life Cycle, (with Giovanni Gallipoli).
This draft: April 2012.
We develop an overlapping-generation, life-cycle model with endogenous education and crime choices. Education and crime depend on different dimensionsof heterogeneity. We apply the model to property crime and calibrate it to U.S.data. We compare two policies: subsidizing high school completion and increasing the length of prison sentences. We find that targeting crime reductions throughincreases in high school graduation rates entails large efficiency and welfare gains. These gains are absent if the same crime reduction is achieved by increasing the length of sentences. We find that general equilibrium effects explain half of the reduction in crime from subsidizing high school. Crucially, the effect of small equilibrium price changes is magnified by their interaction with the underlying individual heterogeneity.
- A generalized
endogenous grid method for non-smooth and non-concave problems.
This draft: February 2013.
This paper extends Carroll's (2006) endogenous grid method and its combination with value function iteration by Barillas and Fernández-Villaverde (2007) to a class of dynamic programming problems, such as problems with both discrete and continuous choices, in which the value function is non-smooth and non-concave. The method is illustrated using a consumer problem in which consumers choose both durable and non-durable consumption subject to borrowing constraints. The durable choice is discrete and subject to non-convex adjustment costs. The algorithm yields substantial gains in accuracy and computational time relative to value function iteration, the standard solution choice for non-concave problems.
Fortran code to implement the algorithm and to replicate the simulations in the paper.
- Optimal Severance
Pay in a Matching Model, with Christopher J. Tyson. This
draft: March 2013.
This paper constructs an equilibrium matching model with risk-averse workers and incomplete markets to study both the optimal private provision of severance pay and the allocational and welfare consequences of government mandates in excess ofthe private optimum. The privately-optimal severance payment is bounded below by the fall in lifetime wealth associated with job loss. Despite market incompleteness, mandated minimum payments significantly exceeding the private optimum are effectively undone by adjustment of the contractual wage, and have only small allocational and welfare effects.
An earlier draft, providing strategic bargaining foundations for the bargaining solution used in the paper, can be found here.
- The Non-neutrality of
Severance Payments with Incomplete Markets, (with Marco
Cozzi). This draft:
We study the equilibrium welfare effects of introducing mandated severance payments in a labor market with costly mobility, where self-insurance through a riskless asset is the only way to smooth fluctuations in labor income due to unemployment shocks. The framework allows for wage flexibility at the level of the individual firm-worker match. Wages vary with both tenure and productivity of the workers. When severance payments are introduced, the firm can potentially undo their effect by modifying the wage profile. Workers entry wages fall by the expected present value of the future payment. However, because of incomplete markets, workers are unlikely to be indifferent about the slope of the wage profile. Moreover, non trivial general equilibrium effects are also present, since the capital stock varies. On the one hand, the precautionary motive for savings is reduced by the introduction of severance payments, since agents are better insured. On the other hand, the change in the wage profile is likely to reduce the savings of young individuals and increase that of older ones. The model is solved numerically and calibrated to the US economy. We compare a welfare measure for the baseline economy, i.e. without severance payments, to those of a series of counterfactual economies where the severance payments are introduced at increasing levels. For reasonable values of the severance payments, Welfare gains and costs seem to be quantitatively small.
Do Firing Costs Matter? This draft: February 1999.
This paper uses a strategic bargaining framework to reassess the effect of dismissal costs in models of voluntary separation. It shows that firing, as opposed to inducing a quit, is always an off-equilibrium strategy for firms in this class of models. Thus, dismissal costs can affect payoffs only if some exogenous event may force the firm to fire the worker despite it being suboptimal, or if the firm's assets are only partly specific to the relationship. In this latter case, dismissal costs increase the specificity of the firm's capital and depress ex post expected profits. In any case, firing restrictions do not affect separation decisions, as firms always find it profitable to induce workers to quit whenever separation is efficient. Involuntary separation is an essential feature of a world in which firing costs result in a lower probability of separation. In such a world, they may be welfare improving, as the separation rate is inefficiently high in the absence of firing restrictions.
The results in this paper will never be published as one single paper. I include it here because it is a self-contained, and cited, reference on the effects of firing costs in environments with risk-neutral and homogeneous workers. Only the result on the neutrality of firing taxes in models of voluntary separation is available elsewhere ("When Do Firing Taxes Matter?" above).
- A Welfare Measure for the Mortensen-Pissarides Model with Discounting.