Moral Hazard, Aggregate Risk and Nominal, Linear Financial Contracts

Alessandro Citanna () and Archishman Chakraborty
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Alessandro Citanna: GREGH - Groupement de Recherche et d'Etudes en Gestion à HEC - HEC Paris - Ecole des Hautes Etudes Commerciales - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: We study competitive equilibria with moral hazard in economies with aggregate risk and where trading occurs with an incomplete set of financial assets. The main conclusion of the paper is that, contrary to the individual risk economies, moral hazard is compatible with trading in competitive linear financial contracts, and gives rise to no manipulation problem. We establish existence of nonmanipulable equilibria provided that there are no relative price effects (e.g. a one-commodity economy), and that ...nancial markets display nonlinearly homogeneous payoffs (e.g., nominal), and are sufficiently incomplete. Finally, we justify the linear contract as the optimal pricing schedule in a specific trading game with an auctioneer.

Keywords: Moral Hazard; Aggregate Risk; Linear Contracts (search for similar items in EconPapers)
Date: 1999
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Published in 1999

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Working Paper: Moral Hazard, Aggregate Risk and Nominal Linear Financial Contracts (1999)
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