EconPapers    
Economics at your fingertips  
 

Bertrand and Walras Equilibria Under Moral Hazard

Pierre Chiappori and Alberto Bennardo ()

No 3650, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We consider a simple model of competition under moral hazard with constant return technologies. We consider preferences that are not separable in effort: marginal utility of income is assumed to increase with leisure, especially for high-income levels. We show that, in this context, Bertrand competition may result in positive equilibrium profit. This result holds for purely idiosyncratic shocks when only deterministic contracts are considered, and extends to unrestricted contract spaces in the presence of aggregate uncertainty. Finally, these findings have important consequences upon the definition of an equilibrium. We show that, in this context, a Walrasian general equilibrium a la Prescott-Townsend may fail to exist: any 'equilibrium' must involve rationing.

Keywords: Moral hazard; Competition; Rationing (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Date: 2002-11
New Economics Papers: this item is included in nep-ind
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP3650 (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:
Working Paper: Bertrand and Walras Equilibria Under Moral Hazard (2003) Downloads
Working Paper: Bertrand and Walras equilibria under moral hazard (2002) Downloads
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:3650

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3650

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 ().

 
Page updated 2025-03-19
Handle: RePEc:cpr:ceprdp:3650