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Risk†Sharing Matching And Moral Hazard

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  • Pu Chen
  • Sanxi Li
  • Bing Ye

Abstract

In this study we model the endogenous relationship formation between risk†averse principals and agents in a CARA†normal framework. Agents exert unobservable efforts to increase mean outputs and reduce risks. We show that risk†reduction efforts are more important than mean†increasing efforts in determining the matching patterns. Compared to cases without moral hazard, the agency problem in risk reduction induces more positive†assortative matchings.

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  • Pu Chen & Sanxi Li & Bing Ye, 2018. "Risk†Sharing Matching And Moral Hazard," Bulletin of Economic Research, Wiley Blackwell, vol. 70(2), pages 165-174, April.
    • Handle: RePEc:bla:buecrs:v:70:y:2018:i:2:p:165-174
    DOI: 10.1111/boer.12139
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