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Hidden insurance in a moral hazard economy

Giuseppe Bertola and Winfried Koeniger

No 2013/25, CFS Working Paper Series from Center for Financial Studies (CFS)

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 formrestrictions 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 nonexclusive 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)
Date: 2013
New Economics Papers: this item is included in nep-cta, nep-ias, nep-mac and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://www.econstor.eu/bitstream/10419/88189/1/773014381.pdf (application/pdf)

Related works:
Journal Article: Hidden insurance in a moral-hazard economy (2015) Downloads
Working Paper: Hidden Insurance in a Moral Hazard Economy (2014) Downloads
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013) Downloads
Working Paper: Hidden Insurance in a Moral Hazard Economy (2013) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cfswop:201325

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