Nonlinear Incentive Contracting in Walrasian Markets : A Cournot Approach

Hellwig, Martin

Document Type: Working paper
Year of publication: 2000
The title of a journal, publication series: Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung
Volume: 00-42
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > VWL, Wirtschaftstheorie (Kübler -2011)
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Abstract: The paper studies insurance with moral hazard in the context of a Walrasian system of contingent-claims markets. The insurance buyer is modelled as a Cournot monopolist. Price-taking agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate the accident probabilities that are associated with the different possible choices of the insurance buyer's net trades as these trades affect effort incentives. When there are many agents to share the insurance buyers risk, Cournot equilibrium outcomes are close to being second-best and close to outcomes under efficient bilateral contracting with risk neutral insurers. In contrast, if the insurance buyer is a price taker, equilibria are bounded away from being second-best or fail to exist.

Dieser Eintrag ist Teil der Universitätsbibliographie.

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