We estimate and compare a variety of continuous-time models of the short-term riskless rate using the Generalized Method of Moments. We find that the most successful models in capturing the dynamics of the short-term interest rate are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rate. A number of well-known models perform poorly in the comparisons because of their implicit restrictions on term structure volatility. We show that these results have important implications for the use of different term structure models in valuing interest rate contingent claims and in hedging interest rate risk.

The Mismatch Between Life Insurance Holdings and Financial Vulnerabilities: Evidence from the Health and Retirement Study by B. Douglas Bernheim, Lorenzo Forni, Jagadeesh Gokhale and Laurence J. Kotlikoff. Published in volume 93, issue 1, pages 354-365 of American Economic Review, March 2003

How Much Should Americans Be Saving for Retirement? by B. Douglas Bernheim, Lorenzo Forni, Jagadeesh Gokhale and Laurence J. Koltikoff. Published in volume 90, issue 2, pages 288-292 of American Economic Review, May 2000

This paper examines the importance of buyer-supplier relationships, geography and the structure of the production network in firm performance. We develop a simple model where firms can outsource tasks and search for suppliers in different locations. Low search and outsourcing costs lead firms to search more and find better suppliers. This in turn drives down the firm's marginal production costs. We test the theory by exploiting the opening of a high-speed (Shinkansen) train line in Japan which lowered the cost of passenger travel but left shipping costs unchanged. Using an exhaustive dataset on firms' buyer-seller linkages, we find significant improvements in firm performance as well as creation of new buyer-seller links, consistent with the model.

We provide experimental evidence that subjects blame others on the basis of events they are not responsible for. In our experiment an agent chooses between a lottery and a safe asset; payment from the chosen option goes to a principal, who then decides how much to allocate between the agent and a third party. We observe widespread blame: regardless of their choice, agents are blamed by principals for the outcome of the lottery, an event they are not responsible for. We provide an explanation of this apparently irrational behavior with a delegated-expertise principal-agent model, the subjects’ salient perturbation of the environment.

Managed care organizations rely on incentives that encourage physicians to limit medical expenditures, but little is known about how physicians respond to these incentives. We address this issue by analyzing the physician incentive contracts in use at a health maintenance organization. By combining knowledge of the incentive contracts with internal company records, we examine how medical expenditures vary with the intensity of the incentive to cut costs. Our investigation leads us to a novel explanation for high‐powered group incentives: such incentives can improve efficiency in the allocation of resources when the allocation process is based on the professional judgment of multiple agents. Our empirical work indicates that medical expenditures at the HMO are 5 percent lower than they would have been in the absence of incentives.

We examine a comprehensive set of investigations by the SEC’s Division of Enforcement offices to provide evidence on the consequences of these office’s busyness on the formal investigation process. We find that higher office case backlog decreases the likelihood of an investigation into a restating firm. Our results show no evidence that higher backlogs affect the SEC’s ability to pursue cases involving revenue recognition issues and high insider trading, which is consistent with the agency’s stated priorities. But our findings indicate that busy SEC offices are less likely to pursue cases with the largest shareholder losses, which is inconsistent with SEC priorities. Backlog also impacts pursued investigations, leading to more prolonged investigations, a lower Accounting and Auditing Enforcement Releases likelihood, and smaller SEC penalties. Our evidence suggests that busyness undermines the SEC’s investigation process.