We show that concerns for fairness may have dramatic consequences for the optimal provision of incentives in a moral hazard context. Incentive contracts that are optimal when there are only selfish actors become inferior when some agents are concerned about fairness. Conversely, contracts that are doomed to fail when there are only selfish actors provide powerful incentives and become superior ...

Why do firms and banks hold foreign currency denominated liabilities? In this paper, we argue that foreign currency debt, by altering the effect of a devaluation on output, has a disciplining effect when the Central Bank’s objectives differ from the social optimum. However, under imperfect information, bad priors about the Central Bank induce excess dollarization of liabilities, which in turn l...