Moral Hazard and Capital Structure Dynamics

We base a contracting theory for a start-up firm on an agency model with observable but nonverifiable effort, and renegotiable contracts. Two essential restrictions on simple contracts are imposed: the entrepreneur must be given limited liability, and the investor’s earnings must not decrease in the realized profit of the firm. All message game contracts with pure strategy equilibria (and no third parties) are considered. Within this class of contracts/equilibria, and regardless of who has the renegotiating bargaining power, debt and convertible debt maximize the entrepreneur’s incentives to exert effort. These contracts are optimal if the entrepreneur has the bargaining power in renegotiation. If the investor has the bargaining power, the same is true unless debt induces excessive effort. In the latter case, a non-debt simple contract achieves efficiency — the non-contractibility of effort does not lower welfare. Thus, when the non-contractibility of effort matters, our results mirror typical capital structure dynamics: an early use of debt claims, followed by a switch to equity-like claims.Moral hazard, renegotiation, convertible debt, capital structure

Rules or consequences? The role of ethical mindsets in moral dynamics

Recent research on the dynamics of moral behavior has documented two contrasting phenomena - moral consistency and moral balancing. Moral balancing refers to the phenomenon whereby behaving (un)ethically decreases the likelihood of doing so again at a later time. Moral consistency describes the opposite pattern - engaging in (un)ethical behavior increases the likelihood of doing so later on. Three studies support the hypothesis that individuals' ethical mindset (i.e., outcome-based versus rule-based) moderates the impact of an initial (un)ethical act on the likelihood of behaving ethically in a subsequent occasion. More specifically, an outcome-based mindset facilitates moral balancing and a rule-based mindset facilitates moral consistency.moral balancing, moral consistency, ethical mindsets, ethical behavior

Moral hazard and dynamics of insider ownership stakes

In this paper, I analyze the ownership dynamics of N strategic risk-averse corporate insiders facing a moral hazard problem. A solution for the equilibrium share price and the dynamics of the aggregate insider stake is obtained in two cases: when agents can credibly commit to an optimal ownership policy and when they cannot commit (time-consistent case). In the latter case, the aggregate stake gradually adjusts towards the competitive allocation. The speed of adjustment increases with N when outside investors are risk-averse, and does not depend on it when investors are risk-neutral. Predictions of the model are consistent with recent empirical findings.Corporate insiders, moral hazard, ownership dynamics

Bidirectional associations between descriptive and injunctive norms

Modern research on social norms makes an important distinction between descriptive norms (how people commonly behave) and injunctive norms (what one is morally obligated to do). Here we propose that this distinction is far from clear in the cognition of social norms. In a first study, using the implicit association test, the concepts of ‘‘common’’ and ‘‘moral’’ were found to be strongly associated. Some implications of this automatic common–moral association were investigated in a subsequent series of experiments: Our participants tended to make explicit inferences from descriptive norms to injunctive norms and vice versa; they tended to mix up descriptive and injunctive concepts in recall tasks; and frequency information influenced participants’ own moral judgments. We conclude by discussing how the common–moral association could play a role in the dynamics of social norms

A Dynamic Analysis of the Demand for Health Insurance and Health Care

We investigate the presence of moral hazard and advantageous or adverse selection in a market for supplementary health insurance. For this we specify and estimate dynamic models for health insurance decisions and health care utilization. Estimates of the health care utilization models indicate that moral hazard is not important. Furthermore, we find strong evidence for advantageous selection, largely driven by heterogeneity in education, income and health preferences. Finally, we show that ignoring dynamics and unobserved fixed effects changes the results dramatically.advantageous selection, health care utilization, supplementary private health insurance, moral hazard, panel data

Chaos in credit–constrained emerging economies with Leontief technology

This work provides a framework to analyze the role of financial development as a source of endogenous instability in emerging economies subject to moral hazard problems. We study a piecewise linear dynamic model describing a small open economy with a tradable good produced by internationally mobile capital and a country specific production factor, using Leontief technology. We demonstrate that emerging markets could be endogenously unstable when large capital in–flows increase risk and exacerbate asymmetric information problems, according to empirical evidence. Using bifurcation and stability analysis we describe the properties of the system attractors, we assess the plausibility for complex dynamics and we find out that border collision bifurcations can emerge.border collision bifurcations,,complex dynamics,,emerging economies,,CEECs,,Endogenous instability,,moral hazard,,piecewise linear map.

Double Moral Hazard and Outcome-based Remuneration of Physicians

The discussion about health care systems focuses on the dynamics of expenditures and on the weak growth of the revenue base. In this discussion it is widely overseen that medical expenditures and supply of medical services crucially depend on the compensation of physician services. The paper analyses the implementation of an outcome-based payment system in the presence of asymmetric information. Two cases are studied in detail: first, the common situation of physician’s moral hazard and second, a double moral hazard model. The choice of insurance and payment contracts then depends on the characteristics of asymmetric information.outcome-based remuneration, double moral hazard, health policy

Signatures of the neurocognitive basis of culture wars found in moral psychology data\ud

Moral Foundation Theory (MFT) states that groups of different observers may rely on partially dissimilar sets of moral foundations, thereby reaching different moral valuations on a subset of issues. With the introduction of functional imaging techniques, a wealth of new data on neurocognitive processes has rapidly mounted and it has\ud become increasingly more evident that this type of data should provide an adequate basis for modeling social systems. In particular, it has been shown that there is a spectrum of cognitive styles with respect to the differential handling of novel or corroborating information.\ud Furthermore this spectrum is correlated to political affiliation. Here we use methods of statistical mechanics to characterize the collective behavior of an agent-based model society whose interindividual interactions due to information exchange in the form of opinions, are in qualitative agreement with neurocognitive and psychological data. The main conclusion derived from the model is\ud that the existence of diversity in the cognitive strategies yields different statistics for the sets of moral foundations and that these arise from the cognitive interactions of the agents. Thus a simple interacting agent model, whose interactions are in accord with empirical data about moral dynamics, presents statistical signatures\ud consistent with those that characterize opinions of conservatives and liberals. The higher the difference in the treatment of novel and corroborating information the more agents correlate to liberals.\u

Historical Consciousness and Ethnicity: How Signifying the Past Influences the Fluctuations in Ethnic Boundary Maintenance

Theorists tend to limit \u27history\u27s\u27 role in the dynamics of ethnicity to that generally played by collective memory. By bringing the notion of historical consciousness to the fore, new possibilities may, however, emerge for discerning how history, as one cultural mode of remembering among many others, impacts both ethnicity delineations and fluctuations in boundary maintenance. In encapsulating the many forms of commemoration as well as the different dimensions of historical thinking, the contribution of historical consciousness accordingly lies on how group members historicize temporal change for moral orientation in time. By likewise signifying past events for negotiating their ethnicity and agency toward the \u27significant Other\u27, social actors gate-keep group boundaries. And, depending on their capacity and willingness to recognize the \u27significant Other\u27s\u27 moral and historical agency in the flow of time, they can transform group delineations and render ethnic boundaries more porous. Key Words: Historical Consciousness; Ethnicity; Group Boundaries; Boundary Maintenance; Boundary Fluctuations; Collective Memory; Disciplinary History; Moral and Historical Agency

Flexicurity, Wage Dynamics and Inequality over the Life-Cycle

We investigate the relationship between life-cycle wages and flexicurity in Denmark. We separate permanent from transitory wages and characterise flexicurity using membership of unemployment insurance funds. We find that flexicurity is associated with lower wage growth heterogeneity over the life-cycle and greater wage instability, changing the nature of wage inequality from permanent to transitory. While we are in general unable to formally test for moral hazard against adverse selection into unemployment insurance membership, robustness checks suggest that moral hazard is the relevant interpretation.unemployment insurance, wage dynamics, wage inequality, wage instability