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Title:Nonlinear Incentive Provision in Walrasian Markets : A Cournot Convergence Approach PDF Logo
Authors:Hellwig, Martin
Issue Date:2004
Series/Report no.:Preprints of the Max Planck Institute for Research on Collective Goods 2004/8
Abstract:The paper studies insurance with moral hazard in a system of contingent-claims markets. Insurance buyers are modelled as Cournot monopolists or oligopolists. The other agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate accident probabilities corresponding to effort incentives induced by insurance buyers? net trades. When there are many agents to share the insurance buyer?s risk, Cournot equilibrium outcomes are close to being second-best. In contrast, if insurance buyers are price takers, equilibria fail to exist or are bounded away from being second-best.
Subjects:Insurance
Moral Hazard
Incentive Contracting
Walrasian Markets
Rational-Expectations
Cournot Equilibrium
Document Type:Working Paper
Appears in Collections:Preprints of the Max Planck Institute for Research on Collective Goods

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