The Basic Analytics of Moral Hazard.

The basic analytics of moral hazard are developed using the simples t possible model of the insurance market. Even when the underlying expe cted utility function and the function relating the accident probability to accident-prevention effort are extremely well behaved, the indifference curves and feasibility set (the set of insurance contracts that at least break even) are not-indifference curves need not be convex and feasibility sets never are; price-and income-consum ption lines may be discontinuous; and effort is not, in general, a monotonic or continuous function of the parameters of the insurance policies provided. Copyright 1988 by The editors of the Scandinavian Journal of Economics.