This paper attempts to identify moral hazard in the traditional reinsurance market. We build a multi-period principle agent model of the reinsurance transaction from which we derive predictions on premium design, monitoring, loss control and insurer risk retention. We then use panel data on U.S....

This paper attempts to identify moral hazard in the traditional reinsurance market. We build a multi-period principle agent model of the reinsurance transaction from which we derive predictions on premium design, monitoring, loss control and insurer risk retention. We then use panel data on U.S....

We address two apparent paradoxes of risk management: (1) managers hedge in order to avoid negative earnings surprises, yet they tend to hedge risks uninformative of the value of the company; and (2) the presence of options in managers' compensation distorts their incentive to hedge, inducing...