| This dissertation consists of two essays that apply tools from contract theory to economic problems. The first essay investigates a job assignment problem in an organization where jobs vary based on the breadth of tasks. The second essay examines how banks and financial markets interact with each other to provide liquidity in an economy where borrowers cannot commit to repay loans.; In the first essay, I develop an agency model of job assignments where jobs differ based on the breadth of tasks. A tradeoff between task complementarities and relative abilities of workers results in those with balanced skills being assigned to multi-task jobs. The same tradeoff between complementarities and relative abilities also influences incentives to sort privately informed workers to jobs. I then apply my theory to managerial assignments. Using patent data on research scientists, I find, in line with the predictions of my model, and in contrast to standard hierarchical theories, that scientists with a higher number of patents are less likely to switch to management.; The second essay examines how banks and financial markets interact with one another to provide liquidity to investors. The critical assumption is that financial markets are characterized by limited enforcement of contracts, and in the event of default only a fraction of borrowers' assets can be seized. Limited enforcement reduces the fraction of assets that can be used as collateral and thus individuals with liquidity shocks face borrowing constraints. We show how banks endogenously overcome these borrowing constraints by pooling resources across several depositors, and increase the liquidity provided by financial markets. |
