Hidden insurance in a moral hazard economy
- We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts.
Author: | Giuseppe Bertola, Winfried KoenigerORCiDGND |
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URN: | urn:nbn:de:hebis:30:3-325027 |
Parent Title (German): | Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2013,25 |
Series (Serial Number): | CFS working paper series (2013, 25) |
Publisher: | Center for Financial Studies |
Place of publication: | Frankfurt, M. |
Document Type: | Working Paper |
Language: | English |
Year of Completion: | 2013 |
Year of first Publication: | 2013 |
Publishing Institution: | Universitätsbibliothek Johann Christian Senckenberg |
Release Date: | 2013/12/17 |
Tag: | constrained efficiency; first-order approach; hidden action; principal agent |
Issue: | November 2013 |
Page Number: | 33 |
HeBIS-PPN: | 349977429 |
Institutes: | Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS) |
Dewey Decimal Classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Sammlungen: | Universitätspublikationen |
Licence (German): | Deutsches Urheberrecht |