We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less...

We consider <InlineEquation ID="IEq1"> <EquationSource Format="TEX">$$H$$</EquationSource> <EquationSource Format="MATHML"> <math xmlns:xlink="http://www.w3.org/1999/xlink"> <mi>H</mi> </math> </EquationSource> </InlineEquation> expected utility maximizers that have to share a risky aggregate multivariate endowment <InlineEquation ID="IEq2"> <EquationSource Format="TEX">$$X\in {\mathbb {R}}^{N}$$</EquationSource> <EquationSource Format="MATHML"> <math xmlns:xlink="http://www.w3.org/1999/xlink"> <mrow> <mi>X</mi> <mo>∈</mo> <msup> <mrow> <mi mathvariant="double-struck">R</mi> </mrow> <mi>N</mi> </msup> </mrow> </math> </EquationSource> </InlineEquation> and address the following two questions: does efficient risk-sharing imply restrictions on the form of individual consumptions as a...</equationsource></equationsource></inlineequation></equationsource></equationsource></inlineequation>

We consider the problem of efficient insurance contracts when the cost structure includes a fixed cost per claim. We prove existence of efficient insurance contracts and that the indemnity function in such contracts is non-decreasing in the damage. We further show that either there is no...

In simple models of borrowing and lending with ex-post asymmetric information, Gale and Hellwig (1985) and Williamson (1986) have shown that optimal debt contracts are simple debt contracts where borrowers repay a fixed interest rate whenever possible and lenders seize all the profit when...