Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach
AbstractThe 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 buyersâ net trades. When there are many agents to share the insurance buyerâs 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Economic Theory.
Volume (Year): 120 (2005)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/inca/622869
Other versions of this item:
- Martin Hellwig, 2004. "Nonlinear Incentive Provision in Walrasian Markets: A Cournot Convergence Approach," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2004_8, Max Planck Institute for Research on Collective Goods.
- D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
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