“Redistribution with Performance Pay”  [Journal of Political Economy Macroeconomics, vol. 1, num. 2, pp. 371-402, June 2023]
with Pawel Doligalski and Nicolas Werquin.

Abstract: Half of the jobs in the U.S. feature pay-for-performance. We derive novel incidence and optimum formulas for the overall rate of tax progressivity and the top income tax rate, when such labor contracts arise from moral hazard frictions within firms. Our first main result is that the sensitivity of the worker’s compensation to performance is roughly invariant to tax progressivity. This is because the direct crowding-out of private insurance is offset by a countervailing crowding-in due to endogenous labor effort responses. Our second main result is that the optimal tax schedule is strictly less progressive than in standard models that treat pre-tax earnings risk as exogenous. This is because the negative welfare consequences of the crowd-out channel outweigh those of the crowd-in. Quantitatively, we find that the crowd-in offsets 92% of the crowdout, and that the welfare cost of not accounting for these effects when choosing tax progressivity is 0.3 percent of consumption.


Abstract: This paper introduces rich dynamic incentive contracts into a benchmark model of unemployment fluctuations and presents three results. First, wage cyclicality due to incentives does not dampen unemployment fluctuations: unemployment dynamics are first-order equivalent in an economy with flexible incentive pay and without bargaining, and in an economy with rigid real wages ( Hall (2005)). Second, wage cyclicality due to bargaining does dampen unemployment fluctuations through the standard mechanism. Third, calibrating the model suggests 40% of wage cyclicality in the data arises from incentives. A standard model without incentives, calibrated to weakly pro-cyclical wages, matches unemployment dynamics in our incentive pay model, calibrated to substantially more pro-cyclical wages.

"How to Fund Unemployment Insurance with Informality and False Claims: Evidence from Senegal", August 2023, selected for Journal of Monetary Economics (CRNYU Conference on Public Policy)
with Abdoulaye Cisse, Alessandro Dell'Acqua, Kyle Herkenhoff, and Ahmadou A. Mbaye

Abstract: This paper studies the welfare effects of unemployment insurance (UI) in low-income countries characterized by high levels of informality, weak enforcement of UI claims, and job search frictions. We assess the impact of UI on workers’ welfare in the presence of moral hazard and liquidity constraints. Our analysis highlights the significance of the UI scheme design on workers' welfare and identifies potential funding constraints in implementing UI in imperfect labor markets. Using a custom labor force survey conducted in Senegal, we estimate the key parameters of an extended Chetty (2006) model incorporating an informal sector, and we evaluate the welfare implications of three different UI schemes with varying degrees of enforcement and funding sources. Our results demonstrate that workers respond to UI benefits and that welfare gains depend on the design of the UI system. We find that broad-based taxation through a VAT, inflation tax, or external funding can compensate for weak enforcement (i.e., high false UI claim rates), leading to substantial and quantifiable welfare gains. Moreover, safety net expansions reduce loan default rates, potentially fostering greater credit access. This study suggests that increasing the prevalence of UI in low-income countries could raise standard measures of consumer welfare.

Abstract: Blockchains, the technology underlying cryptocurrencies, face large fluctuations in user demand. These fluctuations necessitate effective transaction fee mechanisms to manage service allocation. This paper models the blockchain designer's choice between price control and quantity control. I first derive an analytical expression for the advantage of a minimum fee over a rigid block size limit. When demand uncertainty is high, price controls are preferred. A large price elasticity of demand for block space amplifies this advantage. Using these insights, I provide novel results on the dynamics of optimal transaction fee mechanisms within a class of simple mechanisms, including that of the Ethereum blockchain. Further, I study optimal mechanisms that are resistant to complete value extraction by monopolistic blockchain service providers, known as validators. Using Ethereum data, I estimate the parameters of the optimal transaction fee mechanism and offer recommendations for blockchain designers.


“Flexible Retirement and Optimal Taxation”  [Reject & Resubmit, Quarterly Journal of Economics]

Abstract: This paper studies optimal insurance against idiosyncratic wage shocks in a life cycle model with intensive labor supply and endogenous retirement. When the fixed cost of work is increasing in wage, the optimal retirement wedge provides stronger incentives for delayed retirement with age. Retirement benefits that resemble the US Social Security system can implement the optimum. Calibrated numerical simulations suggest that a mix of retirement benefits that increase with claiming age, and age-dependent linear taxes, is close to optimal.

Online Analytic Appendix | Online Computational Appendix
Chicago Fed WP, No 2018-18, 2018 version 

Optimal Property Taxes
with Joshua Coven, and Arpit Gupta

"Multidimensional Blockchain Resource Pricing"

“All About That Gas”