Konstantinos Tokis
PhD Candidate

The London School of Economics
and Political Science
Department of Economics
Houghton St
London WC2A 2AE

Office:    32L.4.08F

Contact: k.e.tokis@lse.ac.uk

Curriculum Vitae

Research Interests:

Microeconomic Theory
Corporate Finance
Public Finance and Tax Compliance

Work In Progress

Dynamic Contracting under Career Concerns

A principal proposes a contract to an agent, which if accepted also specifies the conditions under which the latter could be fired. Production is a function of the agent's ability, which follows a Geometric Brownian motion, and effort, both of which are his private information. After the termination of the contract a second principal, whose production function is inferior to that of the first, bargains with the agent over a new contract. The second contracting process will create career concerns for the agent, as his reports influence not only his payoff while being employed by the first principal, but also his post-termination one.

First, a convenient representation of the first principal's payoff is derived. Then it is shown that the optimal contract prescribes a cutoff on reported ability, below which it is terminated. In the absence of career concerns this will always be decreasing in the agent's initial type, however this result will not generically hold under their presence. A contract that implements the above is presented. This uses a severance package to induce the agent to truthfully report his incompetence, hence this paper identifies a new explanation for the existence of Golden Parachutes. Finally, conditions are identified such that if the first principal can control the flow of information to the second one, by controlling the content of the agent's reference letter for example, then sharing no information at all is optimal for her.

Projects in Early Stages:

Risking it All: Signaling Inefficiencies in the Hedge Fund Industry

Joint with George Vichos and Dimitris Papadimitriou

Are the fees charged by Hedge Funds an efficient contract between the managers and their investors? The first aim of this project is to provide evidence that this is not the case. The second is to link this sub-optimality with the managers' attempt to signal their quality. First, a novel theoretical framework is introduced to model the Hedge Fund Industry, which combines characteristics of both the career concerns and signaling games literatures. Second, we make the argument that career concerns alone would be inadequate in explaining why the fees charged by the industry appear to be relatively more performance based for new funds. Third, we aim to use the unique predictions that our framework provides to construct an estimation strategy that allows for parameters such as the fund managers' reputation and risk aversion to be estimated. This will enable us to quantify the cost of signaling throughout the career of a Hedge Fund Manager.

The Effect of Taxation on Reported Employment and Income: Evidence from Greece

Joint with Panos Mavrokonstantis

A search and matching model with heterogeneous workers and homogeneous firms is developed in order to explain how the presence of taxation influences incentives to report income and employment. Both firms and workers are risk-neutral. Workers differ due to their ability, which is observable. A match's supply of labour is endogenously chosen to maximise its surplus, as is the amount of the match's income which is reported and taxed. Workers with low ability remain unemployed, while those with intermediate levels of ability form matches but remain in the shadow economy, hence they are also counted as unemployed in the official statistics. High productivity matches will join the formal economy, however they will still under-report their produced income. Kinks on the taxation of both the firm and the worker will create bunching on reported income. In particular, matches will bunch both at the minimum wage, and at large convex kinks in the tax schedule. While the latter can be attributed to optimal labour supply choices, the former arises due to tax evasion. We have already received some preliminary administrative Data from the Greek Ministry of Finance and we have filed a request for a more complete dataset.