Essays on markets with frictions

This dissertation consists of three essays that study labor and product markets with search frictions. Chapters 2 and 3 both concern the optimal design of unemployment insurance over the business cycle. Chapter 2, co-authored with Kurt Mitman, quantitatively characterizes optimal unemployment insurance in a general equilibrium Diamond-Mortensen-Pissarides equilibrium search model. The main result is the optimal policy features pro-cyclical unemployment benefits—the opposite of the current US policy. Chapter 3 provides a theoretical characterization of optimal social insurance in a less elaborate principal-agent model, showing that even in a simple moral hazard setting, the productivity-dependence of optimal insurance is ambiguous. Chapter 4, co-authored with Kasie Jean and Randall Wright, studies price setting in search models of money. We show that an important class of monetary models possess multiple equilibria. We also provide an intuitive interpretation of this multiplicity and discuss its robustness