In this paper, we use a Principal-Agent model (à la Holmström) to evaluate the economic impacts at imposing a tax on insurance payment resulting from an optimal contract in presence of moral hazard. We show that, in most cases, the tax generates a disincentive for the risk averse insured to...

In this paper we solve a parametric moral hazard model that incorporates risk and inequity aversion. In the model, the worker's effort is not contractible but the employer can link the worker's compensation to the revenue, a measure probabilistically related to the effort. The model can account...

This paper is concerned with evaluating alternative unemployment insurance (UI) schemes in a dynamic economy with moral hazard. We consider changes in the size and duration of UI benefits, and the effects of experience rating, and use a dynamic contracting approach to determine a benchmark...

Consider a principal-agent relationship in which more effort by the agent raises the likelihood of success. Does rewarding success, i.e., paying a bonus, increase effort in this case? I find that bonuses have not only an incentive but also an income effect. Overall, bonuses paid for success may...

Safety nets may reduce incentives to mitigate risks, and adversely affect people’s behavior. We model the safety net problem as a social dilemma game involving moral hazard, risk taking and limited liability. Individuals take costly measures to avoid a likely loss which, if incurred, is...

Focus of this work is on the contract known as actions-incentive. We suppose it applies to a group of producing farmers of a positive externality. This externality is perceived as a public asset which the society wishes to remunerate. When then analyse the pros and cons and the conditions...

Existence of pure strategy equilibria is studied in insurance markets that exhibit both ex ante adverse selection of the Rothschild-Stiglitz-Wilson type, and ex post hidden information moral hazard. It is found that ex post moral hazard has two offsetting effects on the existence of equilibrium,...

The current financial crisis is the result of longstanding political interventionism. 

Information asymmetries are important in theory but difficult to identify in practice. We estimate the presence and importance of adverse selection and moral hazard in a consumer credit market using a new field experiment methodology. We randomized 58,000 direct mail offers issued by a major...

In the 'Knightian' theory of entrepreneurship, entrepreneurs provide insurance to workers by paying fixed wages and bear all the risk of production. This paper endogenizes entrepreneurial risk by allowing for optimal insurance contracts as well as the occupational self-selection. Moral hazard...