Macroeconomics, Game Theory, Mechanism Design.

Working Papers by topic:

Mechanism Design, Dynamic Taxation

• Dynamic Contracting, Persistent Shocks and Optimal Taxation. (Job Market Paper)
  Abstract : In this paper I develop continuous-time methods for solving dynamic principal-agent problems in which the agent's privately observed productivity shocks are persistent over time. I characterize the optimal contract as the solution to a system of ordinary differential equations, and show that, under this contract, the agent's utility converges to its lower bound--immiseration occurs. I also show that, unlike in environments with i.i.d. shocks, the principal would like to renegotiate with the agent when the agent's productivity is low--it is not renegotiation-proof. I apply the theoretical methods I have developed and numerically solve this (Mirrleesian) dynamic taxation model. I find that it is optimal to allow a wedge between the marginal rate of transformation and individual's marginal rate of substitution between consumption and leisure. This wedge is significantly higher than what is found in the i.i.d. case. Thus, using the i.i.d. assumption is not a good approximation quantitatively when there is persistence in productivity shocks.

Stability Theory in Macroeconomics

• Stochastic Optimal Growth with a Non-Compact State Space.
  Abstract : This paper studies the stability of a stochastic optimal growth economy introduced by Brock and Mirman [JET 4 (1972)] by utilizing stochastic monotonicity in a dynamic system. The construction of two boundary distributions leads to a new method of studying systems with non-compact state space. The paper shows the existence of a unique invariant distribution. It also shows the equivalence between the stability and uniqueness of the invariant distribution in this dynamic system.

• Stability in Models with Aggregate and Idiosyncratic Shocks.
  Abstract : This paper studies stability issues in dynamic economic models with both aggregate and idiosyncratic shocks. Typically this type of dynamic systems has a cross-section distribution in the state variable, which is an immense object for both theoretical study and numerical computation. By using the irreducible markov chain theory and Euler equation technique proposed by Nishimura and Stachurski[JET 122 (2005)], I am able to establish the existence of an invariant distribution. I also obtain sufficient conditions under which the system converges to this invariant distribution globally.