Abstract | PDF (764 kilobytes)

This paper considers the size distortion problem when testing the hypothesis on the cointegrating vector. The test on the cointegrating vector tends to be erroneously rejected. We propose constructing a valid confidence interval by application of the Bonferroni's inequality, and compare the performance to another alternative procedure.

Abstract | PDF (421 kilobytes)

The paper shows that allowing a simple choice such as initiating temporary disputes can cure the holdup problem. This is despite that the specific investments are two-sided, and the nature of the investment is cooperative, the case in which the hold-up problem is the most difficult to overcome. It is because the ``dispute'' option generates multiple equilibria for the ex post renegotiation game, and they can be conditioned to enforce efficient investments.

Abstract | PDF (762 kilobytes)

We prove the existence of Radner equilibrium of plans, price and price expectations in incomplete markets with non-ordered preferences which are subject to portfolio constraints. In particular, the paper extends the results of Werner (1989) to constrained incomplete markets by providing a unifying framework for a variety of restrictions on the risk-sharing role of redundant assets.

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The optimal contract under moral hazard is embedded in a standard equilibrium search model. Under standard assumptions, we show that when firms cannot perfectly observe workers' productivity, the optimal contract takes the form of a standard debt contract. When this contract is embedded in the standard model, the calibrated model can possibly generate a more rigid wage and more volatile employment than the standard model. However, for the model to capture the observed cyclicality of employment, the largest portion of wage should be paid as a base wage which is constant irrespective of worker's performance. When the sources of wage rigidity are investigated, we find that the introduction of optimal contract setting---the absence of bargaining power and the limited incentive effect at the optimum---plays most important roles. This paper provides an endogenous mechanism for real wage rigidity even under the presence of performance-based pay, induced by moral hazard problem.