% Encoding: UTF-8 @Article{Thomas-Worrall23, author = {Jonathan P. Thomas and Tim Worrall}, journal = {Journal of Institutional and Theoretical Economics}, title = {CSelf-enforcing wage contracts redux}, year = {2023}, month = nov, issn = { 0932--4569}, pages = {441--469}, volume = {179}, abstract = {This paper provides our reflections on self-enforcing wage contracts. We present a simple version of the model of Thomas and Worrall (1988) and explain its motivation, contribution, and methodology. We discuss some of its limitations, the development of literature, and its connection to the literature on relational contracting with an observable effort cost. We suggest some open questions for the future development of the literature.}, doi = {https://doi.org/10.1628/jite-2023-0039}, keywords = {Limited commitment, Relational contracts, Risk sharing.}, } @Article{Picard-Worrall20, author = {Pierre M. Picard and Tim Worrall}, journal = {Journal of International Economics}, title = {Currency areas and voluntary transfers}, year = {2020}, month = nov, issn = {0022-1996}, pages = {103390}, volume = {127}, abstract = {Fiscal integration is recognized as an important issue in determining whether countries establish a common currency area. Fiscal integration between sovereign states is, however, limited by the ability of countries to commit to fiscal transfers. This paper supposes that fiscal transfers between countries must be voluntary and asks how this influences the choice between a currency area and a flexible exchange rate regime. It presents a model with wage rigidity in which, absent transfers, the flexible exchange rate regime is preferred. If there are transfers that equalize consumption, then the choice of exchange rate regime is irrelevant. Nevertheless, the currency area may be preferable if transfers are made voluntarily, because the currency area can sustain greater risk sharing. It is shown that the currency area can be optimal for a plausible set of parameter values. We consider the robustness of the conclusions to some modifications of the model.}, doi = {https://doi.org/10.1016/j.jinteco.2020.103390}, keywords = {Optimal currency area, Fiscal union, Limited commitment, Mutual insurance}, url = {http://www.sciencedirect.com/science/article/pii/S0022199620301057}, } @Article{Bougheas-Worrall19, author = {Spiros Bougheas and Tim Worrall}, title = {Portfolio sales and signaling}, journal = {Journal of Banking \& Finance}, year = {2019}, volume = {99}, pages = {182 - 191}, month = feb, issn = {0378-4266}, abstract = {This paper extends the DeMarzo and Duffie (1999) signaling model from single sales to portfolio sales. It shows that the extended model can account for retention of low quality assets and help explain why retained assets may be of varying quality.}, doi = {https://doi.org/10.1016/j.jbankfin.2018.12.008}, keywords = {Securitization, Signaling, Skin in the game}, url = {http://www.sciencedirect.com/science/article/pii/S0378426618302772}, } @Article{Fossetal18, author = {Sergey Foss and Vsevolod Shneer and Jonathan P. Thomas and Tim Worrall}, title = {Stochastic stability of monotone economies in regenerative environments}, journal = {Journal of Economic Theory}, year = {2018}, volume = {173}, pages = {334--360}, month = jan, issn = {0022-0531}, abstract = {We introduce and analyze a new class of monotone stochastic recursions in a regenerative environment which is essentially broader than that of Markov chains. We prove stability theorems and apply our results to three canonical models in recursive economics, generalizing some known stability results to the cases when driving sequences are not independent and identically distributed.}, doi = {https://doi.org/10.1016/j.jet.2017.11.004}, keywords = {Monotone economy, Stochastic recursion, Stochastic stability, One sector stochastic growth model, Bewley-Imrohoroglu-Huggett-Aiyagari model, Risk-sharing model}, url = {http://www.sciencedirect.com/science/article/pii/S0022053117301278}, } @Article{Thomas-Worrall18, author = {Jonathan P. Thomas and Tim Worrall}, title = {Dynamic relational contracts under complete information}, journal = {Journal of Economic Theory}, year = {2018}, volume = {175}, pages = {624--651}, month = may, issn = {0022-0531}, abstract = {This paper considers a long-term relationship between two agents who both undertake an action or investment that produces a joint benefit. Agents have an opportunity to expropriate some of the joint benefit for their own use. Agents have quasi-linear preferences. Two cases are considered: where agents are risk averse but where limited liability constraints do not bind, and where agents are risk neutral and subject to limited liability constraints. We ask how to structure the investments and division of the surplus over time to avoid expropriation. In the risk-averse case, the dynamics of actions and surplus may or may not be monotonic depending on whether or not a first-best allocation can be sustained. Agents may underinvest but never overinvest. If the first-best allocation is not sustainable, there is a trade-off between risk sharing and surplus maximization; surplus may not be at its constrained maximum even in the long run and the “amnesia” property of pure risk-sharing models fails to hold. In contrast, in the risk-neutral case there may be an initial phase in which one agent overinvests and the other underinvests. Both actions and surplus converge monotonically to a stationary state, where surplus is maximized subject to the self-enforcing constraints.}, doi = {https://doi.org/10.1016/j.jet.2018.02.004}, keywords = {Relational contracts, Self-enforcement, Limited commitment, Risk sharing}, url = {http://www.sciencedirect.com/science/article/pii/S0022053118300413}, } @Article{Picard-Worrall16, author = {Pierre M. Picard and Tim Worrall}, title = {Is a Policy of Free Movement of Workers Sustainable?}, journal = {The Scandinavian Journal of Economics}, year = {2016}, volume = {118}, number = {4}, pages = {718--754}, month = oct, abstract = {In this paper, we study the costs and benefits of the adoption of a policy of free movement of workers. For countries to agree on uncontrolled movements of workers, short‐run costs must be outweighed by the long‐term benefits of better labor‐market flexibility and income smoothing. We show that such a policy is less likely to be adopted when workers are more impatient and less risk‐averse, when production technologies display stronger decreasing returns, and when countries trade a significant share of their products.}, doi = {https://doi.org/10.1111/sjoe.12163}, eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.1111/sjoe.12163}, keywords = {Labor�market flexibility, migration, sustainable plan, F22, J61}, url = {https://onlinelibrary.wiley.com/doi/abs/10.1111/sjoe.12163}, } @Article{Bougheas-Worrall12, author = {Spiros Bougheas and Tim Worrall}, title = {Cost padding in regulated monopolies}, journal = {International Journal of Industrial Organization}, year = {2012}, volume = {30}, number = {4}, pages = {331--341}, month = jul, issn = {0167-7187}, abstract = {This paper considers the regulated monopoly that pads or falsifies its costs to increase the cost reimbursement it receives from the regulator. Contrary to the standard literature on cost regulation, the firm engages in cost reducing investment before it enters into a regulatory contract. This pre-contractual investment in cost reduction determines the firm type at the contracting stage. The paper derives both the optimum incentive compatible falsification contract and the equilibrium type distribution. With the distribution of cost types determined endogenously by the pre-contractual investment choice, an increase in the cost of falsification has two effects. First, there is a direct effect that reduces cost padding because it becomes more expensive to do so. Second, there is an indirect effect that increases cost padding because the firm responds by choosing lower investments, and lower investments are associated with more cost padding. It is demonstrated that the direct effect will dominate and both expected levels of cost padding and expected costs for falsification will be reduced. However, the indirect effect increases real costs and, despite the reduction in cost padding, the net effect can reduce welfare. It is determined that these conclusions are significantly different from those obtained when the distribution of cost types is exogenously fixed.}, doi = {https://doi.org/10.1016/j.ijindorg.2011.12.001}, keywords = {Cost padding, Costly state falsification, Endogenous screening}, url = {http://www.sciencedirect.com/science/article/pii/S016771871100107X}, } @Article{Thomas-Worrall07jpet, author = {Jonathan P. Thomas and Tim Worrall}, title = {Unemployment Insurance under Moral Hazard and Limited Commitment: Public versus Private Provision}, journal = {Journal of Public Economic Theory}, year = {2007}, volume = {9}, number = {1}, pages = {151--181}, month = feb, abstract = {This paper analyzes a model of private unemployment insurance under limited commitment and a model of public unemployment insurance subject to moral hazard in an economy with a continuum of agents and an infinite time horizon. The dynamic and steady‐state properties of the optimum private unemployment insurance scheme are established. The interaction between public and private unemployment insurance schemes is examined. Examples are constructed to show that for some parameter values increased public insurance can reduce welfare by crowding out private insurance more than one‐to‐one and that for other parameter values a mix of both public and private insurance can be welfare maximizing.}, doi = {https://doi.org/10.1111/j.1467-9779.2007.00302.x}, eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-9779.2007.00302.x}, url = {https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9779.2007.00302.x}, } @Article{Thomas-Worrall07sjpe, author = {Jonathan P. Thomas and Tim Worrall}, title = {Limited Commitment Models Of The Labour Market}, journal = {Scottish Journal of Political Economy}, year = {2007}, volume = {54}, number = {5}, pages = {750--773}, month = nov, abstract = {We present an overview of models of long‐term self‐enforcing labour contracts in which risk‐sharing is the dominant motive for contractual solutions. A base model is developed that is sufficiently general to encompass the two‐agent problem central to most of the literature, including variable hours. We consider two‐sided limited commitment and look at its implications for aggregate labour market variables. We consider the implications for empirical testing and the available empirical evidence. We also consider the one‐sided limited commitment problem for which there exists a considerable amount of empirical support.}, doi = {https://doi.org/10.1111/j.1467-9485.2007.00440.x}, eprint = {https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1467-9485.2007.00440.x}, keywords = {Labour contracts, self-enforcing contracts, business cycle, unemployment, E32, J41}, url = {https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1467-9485.2007.00440.x}, } @Article{Ligon-Thomas-Worrall02, author = {Ligon, Ethan and Thomas, Jonathan P. and Worrall, Tim}, title = {Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies}, journal = {The Review of Economic Studies}, year = {2002}, volume = {69}, number = {1}, pages = {209--244}, month = jan, abstract = {Recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income, thus rejecting the hypothesis of full risk-pooling. We attempt to explain these observations by adding limited commitment as an impediment to risk-pooling. We provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment, and test the model using data from three Indian villages. We find that the model can fully explain the dynamic response of consumption to income, but that it fails to explain the distribution of consumption across households.}, doi = {https://doi.org/10.1111/1467-937X.00204}, eprint = {/oup/backfile/content_public/journal/restud/69/1/10.1111/1467-937x.00204/2/69-1-209.pdf}, url = {http://dx.doi.org/10.1111/1467-937X.00204}, } @Article{Thomas-Worrall02, author = {Jonathan P. Thomas and Timothy Worrall}, title = {Gift-giving, Quasi-credit and Reciprocity}, journal = {Rationality and Society}, year = {2002}, volume = {14}, number = {3}, pages = {308--352}, month = aug, abstract = {The fluctuations in incomes inherent in rural communities can be attenuated by reciprocal assistance. A model of reciprocal assistance based upon rational action and voluntary participation is presented. Individuals provide assistance only if the costs of so doing are outweighed by the benefits from expected future reciprocation. A distinction is made between general reciprocity, where the counter obligation is expected but not certain, and balanced reciprocity, where there is a firm counter obligation. This firm counter obligation is reflected by including a loan or quasi-credit element in any assistance. It is shown how this can increase the assistance given and it may explain the widespread use of quasi-credit in rural communities. Moreover, it is shown that for a range of parameter values consistent with evidence from three villages in southern India, a simple scheme of gift-giving and quasi-credit can do almost as well as theoretically better but more complicated schemes. }, doi = {https://doi.org/10.1177/1043463102014003003}, eprint = {https://doi.org/10.1177/1043463102014003003}, url = {https://doi.org/10.1177/1043463102014003003}, } @Article{Ligon-Thomas-Worrall00, author = {Ethan Ligon and Jonathan P. Thomas and Tim Worrall}, title = {Mutual Insurance, Individual Savings, and Limited Commitment}, journal = {Review of Economic Dynamics}, year = {2000}, volume = {3}, number = {2}, pages = {216--246}, month = apr, issn = {1094-2025}, abstract = {We examine a dynamic model of mutual insurance when households can also engage in self-insurance by storage. We assume that there is no enforcement mechanism, so that any insurance is informal and must be self-enforcing. We show that consumption allocations satisfy a modified Euler condition and that an enhanced storage technology can either improve or diminish welfare. Furthermore we show that the ex ante transfers introduced into dynamic informal insurance models recently by Gauthier et al. (Gauthier, C., Poitevin, M., and González, P. (1997). Journal of Economic Theory76, 106–144) are only used here in the first period, with the role of ex ante transfers being replaced by differential individual storage. Journal of Economic Literature Classification Numbers: C61, C73, D90, E21.}, doi = {https://doi.org/10.1006/redy.1999.0081}, keywords = {limited commitment, risk sharing, storage}, url = {http://www.sciencedirect.com/science/article/pii/S1094202599900819}, } @InCollection{Hillier-Worrall95, author = {Brian Hillier and Tim Worrall}, title = {Asymmetric Information, Investment Finance and Real Business Cycles}, booktitle = {The New Macroeconomics: Imperfect Markets and Policy Effectiveness}, publisher = {{C}ambridge {U}niversity {P}ress}, year = {1995}, editor = {Huw Dixon and Neil Rankin}, chapter = {12}, pages = {245--272}, month = oct, isbn = {9780521479479}, url = {http://www.timworrall.com/wpapers/DixonRankin.pdf}, } @Article{Hillier-Worrall94, author = {Brian Hillier and Tim Worrall}, title = {The Welfare Implications of Costly Monitoring in the Credit Market}, journal = {The Economic Journal}, year = {1994}, volume = {104}, number = {423}, pages = {350--362}, month = mar, issn = {00130133, 14680297}, abstract = {Rationing is a pervasive feature of credit markets. It has been suggested that credit rationing represents a sub-optimal allocation of resources. In a general equilibrium model of credit rationing with hidden information and costly monitoring we show that if credit is rationed it is sub-optimal but that credit should be rationed more tightly. In equilibrium loan applicants bear average monitoring costs, whereas for efficiency they should bear marginal monitoring costs which are larger because average monitoring costs increase with quantity as extra loans are accompanied by a rise in the interest rate which increases the number of defaults.}, doi = {https://doi.org/10.2307/2234755 ]}, publisher = {[Royal Economic Society]}, url = {http://www.jstor.org/stable/2234755}, } @Article{Thomas-Worrall94, author = {Thomas, Jonathan and Worrall, Tim}, title = {Foreign Direct Investment and the Risk of Expropriation}, journal = {The Review of Economic Studies}, year = {1994}, volume = {61}, number = {1}, pages = {81--108}, month = jan, abstract = {When an investor, for example a transnational corporation, invests abroad it runs the risk that its investment will be expropriated for the simple reason that international contracts are practically impossible to enforce. Any agreements or contracts then undertaken by the transnational company and the host country must be designed to be self-enforcing. It could be possible for the host country and the transnational corporation to find such self-enforcing agreements if there are future gains from trade. Thus although the host country might have a short-term incentive to expropriate, it has a long-term incentive to foster good relations with potential investors to attract more investment in the future. This conflict between short-term and long-term incentives determines the type of investment contracts agreed. This paper extends previous work on the general underprovision of investment when contracts are incomplete or only partially enforceable (see e.g., Grout (1984)) to a dynamic context. It is likewise shown that investment is initially underprovided but it increases over time and for certain parameter values it tends to the efficient level. The expected future discounted returns to the transnational company decline over time, extending Vernon's observation of the obsolescing bargain (Vernon (1971)). The model is also extended to allow for capital accumulation and consideration is given to renegotiation-proof contracts.}, doi = {https://doi.org/10.2307/2297878}, eprint = {/oup/backfile/content_public/journal/restud/61/1/10.2307/2297878/2/61-1-81.pdf}, url = {http://dx.doi.org/10.2307/2297878}, } @Article{Thomas-Worrall90, author = {Jonathan Thomas and Tim Worrall}, title = {Income fluctuation and asymmetric information: An example of a repeated principal-agent problem}, journal = {Journal of Economic Theory}, year = {1990}, volume = {51}, number = {2}, pages = {367--390}, month = aug, issn = {0022-0531}, abstract = {We examine a simple repeated principal-agent model with discounting. There are a risk averse borrower with an unobservable random income and a risk neutral lender. The efficient contract is characterized. It tends to the first-best (constant consumption) contract as the discount factor tends to one and the time horizon extends to infinity. If the time horizon is infinite and the contract is legally enforceable the borrower's utility becomes arbitrarily negative with probability one. If the borrower has constant absolute risk aversion consumption is transferred between any two states at a constant interest rate which is less than the rate of time preference.}, doi = {https://doi.org/10.1016/0022-0531(90)90023-D}, url = {http://www.sciencedirect.com/science/article/pii/002205319090023D}, } @Article{Worrall90, author = {Tim Worrall}, title = {Debt with potential repudiation}, journal = {European Economic Review}, year = {1990}, volume = {34}, number = {5}, pages = {1099--1109}, month = jul, issn = {0014-2921}, abstract = {Lending across national boundaries is different from lending within national boundaries because of the difficulty of imposing legal sanctions. This paper examines a simple model of international lending where the borrower can repudiate, without legal sanction, if this is to his advantage. The model has an infinite time horizon and it is assumed the borrower has an i.i.d. income stream. It is shown that, although debt is initially restricted, in the long run consumption is completely stabilised.}, doi = {https://doi.org/10.1016/0014-2921(90)90025-T}, url = {http://www.sciencedirect.com/science/article/pii/001429219090025T}, } @InCollection{Worrall89, author = {Tim Worrall}, title = {Labour Contract Theory}, booktitle = {The Economics of Missing Markets, Information and Games}, publisher = {{O}xford {U}niversity {P}ress}, year = {1989}, editor = {Frank H. Hahn}, chapter = {15}, pages = {336--359}, isbn = {9780198283218}, url = {http://www.timworrall.com/wpapers/Hahn.pdf}, } @Article{Thomas-Worrall88, author = {Thomas, Jonathan and Worrall, Tim}, title = {Self-Enforcing Wage Contracts}, journal = {The Review of Economic Studies}, year = {1988}, volume = {55}, number = {4}, pages = {541--554}, month = oct, abstract = {We examine long-term wage contracts between a risk-neutral firm and a risk-averse worker when both can costlessly renege and buy or sell labour at a random spot market wage. A self-enforcing contract is one in which neither party ever has an incentive to renege. In the optimum self-enforcing contract, wages are sticky: they are less variable than spot market wages and positively serially correlated. They are updated by a simple rule: around each spot wage is a time invariant interval, and the contract wage changes each period by the smallest amount necessary to bring it into the current interval.}, doi = {https://doi.org/10.2307/2297404}, eprint = {/oup/backfile/content_public/journal/restud/55/4/10.2307/2297404/2/55-4-541.pdf}, url = {http://dx.doi.org/10.2307/2297404}, } @PhdThesis{WorrallPhD83, author = {Tim Worrall}, title = {Labour Contract Theory: An Examination}, school = {{U}niversity of {L}iverpool}, year = {1983}, month = jun, url = {http://www.timworrall.com/wpapers/LabourContractTheoryAnExamination.pdf}, } @Comment{jabref-meta: databaseType:bibtex;} @Comment{jabref-meta: saveOrderConfig:specified;year;true;author;false;abstract;false;}