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Working Paper
Old, Frail, and Uninsured: Accounting for Puzzles in the U.S. Long-Term Care Insurance Market
Koreshkova, Tatyana; Kopecky, Karen A.; Braun, R. Anton (2017-03-01)
Half of U.S. 50-year-olds will experience a nursing home stay before they die, and one in ten will incur out-of-pocket long-term care expenses in excess of $200,000. Surprisingly, only about 10% of individuals over age 62 have private long-term care insurance (LTCI). This paper proposes a quantitative equilibrium optimal contracting model of the LTCI market that features screening along the extensive margin. Frail and/or poor risk groups are ordered a single contract of no insurance that we refer to as a rejection. According to our model, rejections are the main reason that LTCI take-up rates ...
FRB Atlanta Working Paper , Paper 2017-3

Working Paper
Optimal Delegation Under Unknown Bias: The Role of Concavity
Tanner, Noam (2018-03-30)
A principal is uncertain of an agent's preferences and cannot provide monetary transfers. The principal, however, does control the discretion granted to the agent. In this paper, we provide a simple characterization of when it is optimal for the principal to screen by offering different terms of discretion to the agent. When the principal's utility is sufficiently concave, it is optimal for the principal to pool and to offer all agents the same discretion. Thus, for any number of agents and any distribution over agent preferences, the optimal contract is simple: the principal sets a cap and ...
Supervisory Research and Analysis Working Papers , Paper RPA 18-1

Working Paper
Why Do Earnings Fall with Job Displacement?
Fallick, Bruce; Carrington, William J. (2014-06-02)
The earnings of workers are reduced for many years after being displaced from their jobs, and those workers and their families face increased risk of other problems as well. The ills suffered by displaced workers motivated several recent expansions of government programs, including the unemployment insurance system, and have spurred calls for wage insurance that would provide longerrun earnings replacement. However, while the magnitude of the losses is relatively clear, the theory of why displacement matters is scattered and somewhat undeveloped. Much of the policy discussion appears to ...
Working Papers (Old Series) , Paper 1405

Working Paper
How to Reform US Long-Term Care
Kopecky, Karen A.; Braun, R. Anton (2026-09-28)
Long-term care is costly. About 45 percent of 65-year-old Americans will require formal long-term care assistance during their lifetime and one in twelve will incur out-of-pocket expenses of $200,000 or more. Surprisingly, only 10 percent of retirees have private long-term care insurance. We use a quantitative structural model to show that an obstacle to increasing coverage is disagreement across the income distribution: scaling back public long-term care insurance expands the private market and benefits the affluent but imposes large welfare losses on the poor, while universal public ...
Working Papers , Paper 26-25

Working Paper
Aggression of the Weak
Kaymak, Barış (2026-10-07)
This paper compares equilibrium bidding strategies in a first-price sealed-bid auction with two asymmetric bidders who have dependent private valuations. Modeling bidder strength via a stochastic asymmetry condition – where one bidder is systematically more likely to hold the maximum valuation – I show that the globally weak bidder, facing a competitive disadvantage at all top valuation levels, bids more aggressively at every valuation. Conversely, the stronger bidder wins more frequently, generalizing Maskin and Riley (2000) to dependent private-value environments. When the stochastic ...
Working Papers , Paper 26-27

Working Paper
Banker Compensation, Relative Performance, and Bank Risk
Prescott, Edward Simpson; Jarque, Arantxa (2019-11-05)
A multi-agent, moral-hazard model of a bank operating under deposit insurance and limited liability is used to analyze the connection between compensation of bank employees (below CEO) and bank risk. Limited liability with deposit insurance is a force that distorts effort down. However, the need to increase compensation to risk-averse employees in order to compensate them for extra bank risk is a force that reduces this effect. Optimal contracts use relative performance and are implementable as a wage with bonuses tied to individual and firm performance. The connection between pay for ...
Working Papers , Paper 19-20

Working Paper
Forward Guidance under Imperfect Information: Instrument Based or State Contingent?
Jia, Chengcheng (2019-11-05)
I study the optimal type of forward guidance in a flexible-price economy in which both the private sector and the central bank are subject to imperfect information about the aggregate state of the economy. In this case, forward guidance changes the private sector?s expectations about both future monetary policy and the state of the economy. I study two types of forward guidance. The first type is instrument based, in which case the central bank commits to a value of the policy instrument. The second type is state contingent, in which case the central bank reveals its imperfect information and ...
Working Papers , Paper 19-22

Working Paper
Reforming the US Long-Term Care Insurance Market
Kopecky, Karen A.; Braun, R. Anton (2024-08-14)
Nursing home risk is significant and costly. Yet, most Americans pay for long-term care (LTC) expenses out-of-pocket. This chapter examines reforms to both public and private LTCI provision using a structural model of the US LTCI market. Three policies are considered: universal public LTCI, no public LTCI coverage, and a policy that exempts asset holdings from the public insurance asset test on a dollar-for-dollar basis with private LTCI coverage. We find that this third reform enhances social welfare and creates a vibrant private LTCI market while preserving the safety net provided by public ...
Working Papers , Paper 24-17

Working Paper
Quantifying the Signaling Role of Education
Kaymak, Barış (2025-01-09)
This paper quantifies the signaling role of education and measures the associated efficiency losses from asymmetric information. To that end, I model educational attainment and occupational choices in an asymmetric information environment with employer learning and socially productive education. The model highlights how occupational sorting and the pace of employer learning jointly determine the strength of the signaling motive in equilibrium. I estimate the signaling role of education versus human capital by relating differences in employer learning across occupations, which generates ...
Working Papers , Paper 25-02

Working Paper
The boy who cried bubble: public warnings against riding bubbles
Asako, Yasushi; Ueda, Kozo (2014-01-16)
Attempts by governments to stop bubbles by issuing warnings seem unsuccessful. This paper examines the effects of public warnings using a simple model of riding bubbles. We show that public warnings against a bubble can stop it if investors believe that a warning is issued in a definite range of periods commencing around the starting period of the bubble. If a warning involves the possibility of being issued too early, regardless of the starting period of the bubble, it cannot stop the bubble immediately. Bubble duration can be shortened by a premature public warning, but lengthened if it is ...
Globalization Institute Working Papers , Paper 167

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