We study competitive economies with adverse selection and fully exclusive contractual relationships. We consider economies where agents are privately informed over the probability distribution of their endowments, and trade to insure against this uncertainty. As in Prescott-Townsend (1984), we...

This paper analyzes a model in which incentive constrained contracting implies both amplification and intertemporal propagation of technology shocks. In the model risk averse agents choose between a riskless technology and a risky technology (`the entrepreneurial activity') with higher expected...