Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/90057
Authors: 
Bertola, Giuseppe
Koeniger, Winfried
Year of Publication: 
2013
Series/Report no.: 
IZA Discussion Paper 7806
Abstract: 
We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts.
Subjects: 
hidden action
principal agent
first-order approach
constrained efficiency
JEL: 
E21
D81
D82
Document Type: 
Working Paper

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