Optimal Cash Management under Imperfect Monitoring

By Shiv Dixit

Citation

Dixit, Shiv. (2023). Optimal Cash Management under Imperfect Monitoring .

2023

Abstract

I study efficient thresholds on cash transfers in a dynamic contracting model where income is harder to monitor when there is more cash usage. To motivate the analysis, I examine the uniform limits on cash withdrawals imposed following the recent demonetization in India. I document substantial heterogeneity in the effect of these limits on consumption expenditure across income and wealth distributions. This finding suggests that non-discriminatory trans- fer limits are too blunt to insure against idiosyncratic income risk. I show that sharper in- struments–transfer limits contingent on the history of reported household income–can reduce inequality and yield substantial welfare gains.

Shiv Dixit is an Assistant Professor of Economics and Public Policy at the Indian School of Business (ISB). He received his PhD in Economics from the University of Minnesota. He is a macroeconomist who uses tools in dynamic contracting theory to address issues in public finance, monetary economics, and development economics.

His dissertation examined how contractual frictions interact with the amount of risk people choose to bear, the kind of rules a government can impose on itself to discipline time-inconsistent behaviour; and the design of efficient demonetisation policies.

Professor Dixit has previously worked at the Federal Reserve Bank of Minneapolis and the International Monetary Fund. Prior to his PhD, he graduated from the University of Michigan, Ann Arbor, with concentrations in economics and mathematics.

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