European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 683: Moral Hazard, Aggregate Risk and Nominal Linear Financial Contracts

CITANNA Alessandro and CHAKRABORTY Archishman

Abstract: We study competitive equilibria with moral hazard in economies with aggregate risk and where trading occurs with an incomplete set of financial assets. The main conclusion of the paper is that, contrary to the individual risk economies, moral hazard is compatible with trading in competitive linear financial contracts, and gives rise to no manipulation problem. We establish existence of nonmanipulable equilibria provided that there are no relative price effects (e.g., a one-commoditiy economy), and that financial markets display nonlinearly homogeneous payoffs (e.g., nominal), and are sufficiently incomplete. Finally, we justify the linear contract as the optimal pricing schedule in a specific trading game with an auctioneer.

Keywords: moral hazard; linear contracts

JEL-codes: D50; D82

31 pages, September 14, 1999

Full text files

15d0880f17655cb5a7f52ccaa8a89fe3.pdf PDF-file 

Download statistics

Questions (including download problems) about the papers in this series should be directed to Antoine Haldemann ()
Report other problems with accessing this service to Sune Karlsson ().

This page generated on 2024-02-05 15:47:24.