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On moral hazard and nonexclusive contracts

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  • Attar, Andrea
  • Chassagnon, Arnold

Abstract

We study an economy where intermediaries compete over contracts in a nonexclusive insurance market affected by moral hazard. In this context, we show that, contrarily to what is commonly believed, market equilibria may fail to be efficient even if the planner is not allowed to enforce exclusivity of trades (third best inefficiency). Our setting is the same as that of Bisin and Guaitoli [Bisin, A., Guaitoli, D., 2004. Moral hazard with nonexclusive contracts. Rand Journal of Economics 2, 306-328]. We hence argue that some of the equilibrium conditions they imposed are not necessary, and we exhibit a set of equilibrium allocations which fail to satisfy them.

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  • Attar, Andrea & Chassagnon, Arnold, 2009. "On moral hazard and nonexclusive contracts," Journal of Mathematical Economics, Elsevier, vol. 45(9-10), pages 511-525, September.
  • Handle: RePEc:eee:mateco:v:45:y:2009:i:9-10:p:511-525
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    1. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
    2. Attar, Andrea & Piaser, Gwenael & Porteiro, Nicolas, 2007. "A note on Common Agency models of moral hazard," Economics Letters, Elsevier, vol. 95(2), pages 278-284, May.
    3. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-40, July.
    4. Richard Arnott & Joseph Stiglitz, 1993. "Price Equilibrium, Efficiency, And Decentralizability In Insurance Markets With Moral Hazard," Boston College Working Papers in Economics 254, Boston College Department of Economics.
    5. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 41-61, February.
    6. Attar Andrea & Campioni Eloisa & Piaser Gwenael, 2006. "Multiple Lending and Constrained Efficiency in the Credit Market," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 6(1), pages 1-35, October.
    7. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn.
    8. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
    9. David Martimort & Lars Stole, 2002. "The Revelation and Delegation Principles in Common Agency Games," Econometrica, Econometric Society, vol. 70(4), pages 1659-1673, July.
    10. Simon, Leo K & Stinchcombe, Maxwell B, 1995. "Equilibrium Refinement for Infinite Normal-Form Games," Econometrica, Econometric Society, vol. 63(6), pages 1421-1443, November.
    11. Attar, Andrea & Majumdar, Dipjyoti & Piaser, Gwenaël & Porteiro, Nicolás, 2008. "Common agency games: Indifference and separable preferences," Mathematical Social Sciences, Elsevier, vol. 56(1), pages 75-95, July.
    12. Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, Oxford University Press, vol. 88(1), pages 44-62.
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    Cited by:

    1. Andrea Attar & Thomas Mariotti & François Salanié, 2022. "Regulating Insurance Markets: Multiple Contracting And Adverse Selection," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 63(3), pages 981-1020, August.
    2. Frédéric Loss & Gwanaël Piaser, 2013. "Linear Prices Equilibria and Nonexclusive Insurance Market," Working Papers hal-00870113, HAL.
    3. Joseph E. Stiglitz & Jungyoll Yun & Andrew Kosenko, 2017. "Equilibrium in a Competitive Insurance Market Under Adverse Selection with Endogenous Information," NBER Working Papers 23556, National Bureau of Economic Research, Inc.
    4. Andrea Attar & Catherine Casamatta & Arnold Chassagnon & Jean-Paul Décamps, 2019. "Multiple Lenders, Strategic Default, and Covenants," American Economic Journal: Microeconomics, American Economic Association, vol. 11(2), pages 98-130, May.
    5. Attar, Andrea & Mariotti, Thomas & Salanié, François, 2021. "Competitive Nonlinear Pricing under Adverse Selection," TSE Working Papers 21-1201, Toulouse School of Economics (TSE), revised Aug 2022.
    6. Andrea Attar & Eloisa Campioni & Gwenaël Piaser & Uday Rajan, 2012. "Competing mechanism games of moral hazard: communication and robustness," Review of Economic Design, Springer;Society for Economic Design, vol. 16(4), pages 283-296, December.
    7. Charles M. Kahn & Francisco Rivadeneyra & Tsz-Nga Wong, 2020. "Eggs in One Basket: Security and Convenience of Digital Currencies," Working Papers 2020-032, Federal Reserve Bank of St. Louis.
    8. , & , & ,, 2014. "Nonexclusive competition under adverse selection," Theoretical Economics, Econometric Society, vol. 9(1), January.
    9. Green, Daniel & Liu, Ernest, 2021. "A dynamic theory of multiple borrowing," Journal of Financial Economics, Elsevier, vol. 139(2), pages 389-404.
    10. Andrea Attar & Thomas Mariotti & François Salanié, 2011. "Nonexclusive Competition in the Market for Lemons," Econometrica, Econometric Society, vol. 79(6), pages 1869-1918, November.
    11. Jaynes, Gerald D., 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Working Papers 91, Yale University, Department of Economics.
    12. Gerald D. Jaynes, 2018. "Endogenous Beliefs and Institutional Structure in Competitive Equilibrium with Adverse Selection," Cowles Foundation Discussion Papers 2159, Cowles Foundation for Research in Economics, Yale University.
    13. A. Citanna & P. Siconolfi, 2016. "Designing insurance markets with moral hazard and nonexclusive contracts," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 62(1), pages 325-360, June.
    14. Loss, Frédéric & Piaser, Gwenaël, 2019. "Linear price equilibria in a non-exclusive insurance market," Journal of Mathematical Economics, Elsevier, vol. 81(C), pages 22-30.
    15. Gerald D. Jaynes, 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Levine's Working Paper Archive 786969000000000243, David K. Levine.
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