Regular moral hazard economies

That paper formalizes the idea that when the magnitude of the moral hazard phenomenon is not important, the distortions like equilibria multiplicity or equilibrium discontinuity relative to the economic fundamentals disappear. We study a two state of nature insurance model, with a risk neutral principal, a risk averse agent and separable costs. Typically, in such economies, non convexities imply that the set of Pareto optimal allocations is not connected. Surprisingly, we prove that it is never the case under weak and realistic assumptions. That result is in particular valid under simple regularity assumptions on the cost function when the productivity of effort is always positive. We show that such regularity of the moral hazard economy is compatible with remaining strong non convexities.moral hazard ; non convexities ; equilibrium uniqueness

On moral hazard and nonexclusive contracts

We study an economy where intermediaries compete over contracts in a nonexclusive insurance market affected by moral hazard. Our setting is the same as that developed in Bisin and Guaitoli [2004]. The present note provides a counterexample to the set of necessary conditions for high effort equilibria developed in Bisin and Guaitoli [2004] and suggests an alternative equilibrium characterization.non-exclusivity ; insurance ; moral hazard

On moral hazard and nonexclusive contracts

We study an economy where intermediaries compete over contracts in a nonexclusive insurance market affected by moral hazard. Our setting is the same as that developed in Bisin and Guaitoli [2004]. The present note provides a counterexample to the set of necessary conditions for high effort equilibria developed in Bisin and Guaitoli [2004] and suggests an alternative equilibrium characterization.Cet article étudie une économie dans laquelle des assureurs, en concurrence, ne peuvent pas proposer de clauses d'exclusivitéé alors que l'on est dans un contexte d'alea moral. Notre modèle est identique à celui développé dans "Alberto Bisin and Danilo Guaitoli. Moral hazard with non-exclusive contracts. Rand Journal of Economics, 2:306-328, 2004." La présente note développe un contrexemple aux propositions 2, 3 et 4 dans Bisin and Guaitoli [2004], suggérant une caractérisation différente des équilibres qui incitent les assurés à choisir un effort élevé

Comparative Risk Aversion: A Formal Approach with Applications to Saving Behaviors

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman [15], Selden [26], Epstein and Zin [9] and Quiggin [24] are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion.Risk aversion, Savings behaviors, Precautionary savings

La demande d'assurance dépendance dans un cadre trivarié.

Private insurance for long-term care is underdeveloped in European countries and in the US. This paper tries to understand why the market is underdevelopped by using a theoretical approach and putting the emphasis on insurance demand. It shows that demand for long term care insurance can be low because current and expected health condition of individuals have a strong effect on wealth utility and thus insurance demand. Individual preferences may lead some persons not to seek insure. The underdevelopped market of long-term care insurance might not be only due to insurance supply, market failures, family impacts or institutional design. It is analyzed as a direct consequence of individual preferences.dépendance; assurance dépendance; demande d'assurance;

Comparative Risk Aversion: A Formal Approach with Applications to Saving Behaviors

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman [15], Selden [26], Epstein and Zin [9] and Quiggin [24] are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion

Comparative Risk Aversion: A Formal Approach with Applications to Savings Behaviors

We consider a formal approach to comparative risk aversion and applies it to intertemporal choice models. This allows us to ask whether standard classes of utility functions, such as those inspired by Kihlstrom and Mirman (1974), Selden (1978), Epstein and Zin (1989) and Quiggin (1982) are well-ordered in terms of risk aversion. Moreover, opting for this model-free approach allows us to establish new general results on the impact of risk aversion on savings behaviors. In particular, we show that risk aversion enhances precautionary savings, clarifying the link that exists between the notions of prudence and risk aversion

Multiple Lenders, Strategic Default and the Role of Debt Covenants

We study capital markets subject to moral hazard when investors cannot prevent side trading, thereby facing an externality if firms raise funds from multiple sources. We analyze whether investors’ ability to design financial covenants that may include exclusivity clauses mitigates this externality. Following covenant violations, investors can accelerate the repayment of their loan, adjust its size, or increase interest rates. Enlarging contracting opportunities generates a severe market failure: with covenants, equilibria are indeterminate and Pareto ranked. We show that an investors-financed subsidy scheme to entrepreneurs alleviates the incentive to overborrow and sustains the competitive allocation as the unique equilibrium one

Contracting Sequentially with Multiple Lenders

We study a capital market in which multiple lenders sequentially attempt at financing a single borrower under moral hazard. We show that restricting lenders to post take-it-or-leave-it offers involves a severe loss of generality: none of the equilibrium outcomes arising in this scenario survives if lenders offer menus of contracts. This result challenges the approach followed in standard models of multiple lending. From a theoretical perspective, we offer new insights on equilibrium robustness in sequential common agency games