A Note on Walrasian Equilibria with Moral Hazard and Aggregate Uncertainty

Piero Gottardi and Belén Jerez

No 2006_43, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: In a fundamental contribution, Prescott and Townsend (1984) [PT] have shown that the existence and efficiency properties of Walrasian equilibria extend to economies with moral hazard, when agents' trades are observable (exclusive contracts can be implemented). More recently, Bennardo and Chiappori (2003) [BC] have argued that Walrasian equilibria may (robustly) fail to exist when the class of moral hazard economies considered by Prescott and Townsend is generalized to allow for the presence of aggregate, in addition to idiosyncratic, uncertainty and for preferences which are nonseparable in consumption and effort. We re-examine here the existence and efficiency properties of Walrasian equilibria in the moral hazard economy considered by Bennardo and Chiappori. We show that Walrasian equilibria always exist in such economy and are incentive efficient, so the results of Prescott and Townsend continue to hold in the more general set-up considered by Bennardo and Chiappori.

Keywords: Moral Hazard; Aggregate Risk; Incentive Efficiency; Walrasian Markets (search for similar items in EconPapers)
JEL-codes: D50 D82 D86 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... ardi_Jerez_43_06.pdf (application/pdf)

Related works:
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:ven:wpaper:2006_43

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().