Exogenous Targeting Instruments as a Solution to Group Moral Hazards
John Spraggon ()
Department of Economics Working Papers from McMaster University
The ability of four contracts within the general class of exogenous targeting instruments, proposed by Segerson (1988), to induce socially optimal outcomes in a group moral hazard environment is investigated in an experiment based on Nalbantian and Schotter (1987). Both contracts based on the Holmstrom (1982) forcing contract with multiple equilibria, and contracts based on the Segerson study with unique equilibria are tested. My result -- that contracts can be designed that mitigate the moral hazard problem at the aggregate level -- is a significant advance on the result of Nalbantian and Schotter -- that costly monitoring or competitive teams are required to solve the moral hazard problem. It is shown that this result is robust to uncertainty as well as experience. However, none of the contracts insures compliance at the individual level, and as a result hefty fines may be accrued by individuals even when they choose the socially optimal action.
JEL-codes: H21 C92 (search for similar items in EconPapers)
Pages: 48 pages
New Economics Papers: this item is included in nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed
Downloads: (external link)
Journal Article: Exogenous targeting instruments as a solution to group moral hazards (2002)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:mcm:deptwp:1998-01
Access Statistics for this paper
More papers in Department of Economics Working Papers from McMaster University Contact information at EDIRC.
Bibliographic data for series maintained by ().