Date of Award


Degree Type


Degree Name

Doctor of Philosophy


In the first chapter, a computable equilibrium business cycle model is constructed to study the effects of inflation and taxation on the allocation of capital and time between the market sector and the home sector. In the model, individuals derive utility from the consumption of market goods and services, which are produced by combining business capital and market time, and from the consumption of home goods and services, which are produced by using household capital and nonmarket time. Money is incorporated into the model using a cash-in-advance constraint which applies to the purchase of market consumption goods. The model economy is parameterized and simulated to study the cyclical properties of the economy. In addition, the welfare cost of the inflation tax and the steady state effects of inflation are studied.;Chapter two studies the contracting problem in a principal-agent setup with costly state verification. A risk-neutral entrepreneur has no endowment, but has access to an investment project which requires the inputs of both consumption goods and entrepreneurial effort. She can finance her project by borrowing from a risk-neutral lender. The lender can observe the project outcome at a fixed cost but cannot observe the entrepreneurial effort level. The optimal contract between the entrepreneur and the lender is derived. Conditions under which the optimal contract converges to a simple debt contract are studied.;Chapter three presents a simple two-outcome costly state verification model to investigate the moral hazard problem caused by the establishment of a deposit insurance scheme in a unit banking system. In the presence of a deposit insurance scheme, depositors have no incentives to monitor the bank in which they have deposited. If there is inadequate government supervision, the bank may choose a riskier portfolio when the interest rate is high. Despite causing a moral hazard problem, the establishment of a deposit insurance system can improve welfare by reducing the costs of monitoring. Overall welfare is found to depend on the relative strengths of these two opposing effects.



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