General Equilibrium with Endogenous Securities and Moral Hazard

Luis Braido ()

Microeconomics from University Library of Munich, Germany

Abstract: This paper studies a class of general equilibrium economies in which the individuals' endowments depend on privately observed effort choices and the financial markets are endogenous. The environment is modeled as a two-stage game. Individuals first make strategic financial-innovation decisions. They then act in a Radner-type economy with the previously designed securities. Consumption goods, portfolios, and effort levels are chosen competitively (i.e., taking prices as given). An equilibrium concept is adapted for these moral hazard economies and its existence is proven. It is shown through an example how incentive motives might lead to the endogenous emergence of financial incompleteness.

Keywords: general equilibrium; moral hazard; endogenous incomplete markets; non-exclusive securities (search for similar items in EconPapers)
JEL-codes: D52 D82 G10 G22 (search for similar items in EconPapers)
Date: 2004-07-14
Note: Type of Document - pdf
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Journal Article: General equilibrium with endogenous securities and moral hazard (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpmi:0407007

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