Hidden Insurance in a Moral Hazard Economy

Giuseppe Bertola and Winfried Koeniger

No 9864, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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 non-exclusive financial contracts.

Keywords: Constrained efficiency; First-order approach; Hidden action; Principal agent (search for similar items in EconPapers)
JEL-codes: D81 D82 E21 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-cta, nep-ias, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP9864 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Hidden insurance in a moral-hazard economy (2015)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013)
Working Paper: Hidden insurance in a moral hazard economy (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:9864

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP9864

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().