European Business Schools Librarian's Group

HEC Research Papers Series,
HEC Paris

No 699: Moral hazard and linear contracts : Economies with idiosyncratic risks

Alessandro CITANNA

Abstract: In exchange economies where moral hazard affects the distribution of individual risks, we study the viability of linear nonexclusive contracts. It is shown that the linearity in prices and payoffs is compatible with the presence of moral hazard when coupled with a simple participation fee. More specifically, we prove existence of competitive equilibrium when individuals exchange the contracts. The participation fee can be seen as a form of sharing the profits and losses of an insurance company offering such contracts. The contracts can be given the more general interpretation of financial assets in markets where the unverifiability of trades is widespread. The asset prices are such that financial markets may be "incomplete" at equilibrium.

Keywords: Moral hazard; competitive equilibrium; financial markets; insurance

JEL-codes: C62; D50; D82; G22

28 pages, January 1, 2000

Full text files

5ed3f347f9b83002c7127cab6b09c46f.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 ().

RePEc:ebg:heccah:0699This page generated on 2024-09-13 22:19:52.