Hidden Insurance in a Moral Hazard Economy

Giuseppe Bertola and Winfried Koeniger

No 1337, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

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: Hidden action; Principal agent; First-order approach; Constrained efficiency (search for similar items in EconPapers)
JEL-codes: D81 D82 E21 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2013-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1337.pdf (application/pdf)

Related works:
Journal Article: Hidden insurance in a moral-hazard economy (2015)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2014)
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013)
Working Paper: Hidden insurance in a moral hazard economy (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:usg:econwp:2013:37

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