| This thesis analyzes different contractual arrangements.; In the first essay, I consider the most commonly used social contract: money issued by governments. I show the optimality of such a societal arrangement. Private money—issued by people—is inefficient because it is costly in a very specific sense. An agent issuing money always has the incentive to reject payment for the good he produces. Hence, he must be monitored at a cost. Such monitoring is not necessary when society uses government's money. The government produces public goods which therefore are not purchased by other agents. Hence the government does not need to be monitored.; The second essay analyzes labor contracts. In low inflation countries, labor contracts are generally written in nominal terms, while in high inflation countries, indexed contracts are preferred. The paper presents an argument that explains this fact. Using a principal-agent framework first introduced by Jovanovic and Ueda (1997), this paper shows that whenever prices are highly volatile (in high inflation regime), optimal contracts are indexed. Otherwise, optimal contracts are nominal.; The final essay is concerned with money issued by private banks. In particular, it constitutes an attempt to resolve the “National Bank note puzzle”: the apparent presence of persistent—and large—unexploited arbitrage opportunities for note issuing banks during the U.S. National Banking System. The marginal cost of issuing notes is assumed to be an increasing function of circulation. This endogenizes the inelasticity of note issue, which is consistent with the above fact. |
