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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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Bibliographic Info

Article provided by Elsevier in its journal Journal of Mathematical Economics.

Volume (Year): 45 (2009)
Issue (Month): 9-10 (September)
Pages: 511-525

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Handle: RePEc:eee:mateco:v:45:y:2009:i:9-10:p:511-525

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Web page: http://www.elsevier.com/locate/jmateco

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Keywords: Non-exclusivity Insurance Moral hazard;

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References

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  1. Simon, Leo K & Stinchcombe, Maxwell B, 1995. "Equilibrium Refinement for Infinite Normal-Form Games," Econometrica, Econometric Society, Econometric Society, vol. 63(6), pages 1421-43, November.
  2. Andrea Attar & Eloisa Campioni & Gwenäel Piaser, 2006. "Multiple Lending and Constrained Efficiency in the Credit Market," Working Papers, Department of Economics, University of Venice "Ca' Foscari" 2006_29, Department of Economics, University of Venice "Ca' Foscari".
  3. Martimort David & Stole Lars, 2003. "Contractual Externalities and Common Agency Equilibria," The B.E. Journal of Theoretical Economics, De Gruyter, De Gruyter, vol. 3(1), pages 1-40, July.
  4. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 88(1), pages 44-62, February.
  5. Attar, Andrea & Piaser, Gwenael & Porteiro, Nicolas, 2007. "A note on Common Agency models of moral hazard," Economics Letters, Elsevier, Elsevier, vol. 95(2), pages 278-284, May.
  6. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
  7. Charles M. Kahn & Dilip Mookherjee, 1996. "Competition and Incentives with Non-Exclusive Contracts," Papers, Boston University - Industry Studies Programme 0075, Boston University - Industry Studies Programme.
  8. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, American Economic Association, vol. 91(5), pages 1311-1328, December.
  9. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series, CESifo Group Munich 575, CESifo Group Munich.
  10. Attar, Andrea & Majumdar, Dipjyoti & Piaser, Gwenaël & Porteiro, Nicolás, 2008. "Common agency games: Indifference and separable preferences," Mathematical Social Sciences, Elsevier, Elsevier, vol. 56(1), pages 75-95, July.
  11. Bizer, David S & DeMarzo, Peter M, 1992. "Sequential Banking," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(1), pages 41-61, February.
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Citations

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Cited by:
  1. Andrea Attar & Thomas Mariotti & François Salanié, 2010. "Non-Exclusive Competition in the Market for Lemons," CEIS Research Paper, Tor Vergata University, CEIS 159, Tor Vergata University, CEIS, revised 28 May 2010.
  2. Andrea Attar & Eloisa Campioni & Gwenael Piaser & Uday Rajan, 2011. "Competing Mechanism Games of Moral Hazard: Communication and Robustness," CEIS Research Paper, Tor Vergata University, CEIS 196, Tor Vergata University, CEIS, revised 10 Jun 2011.
  3. Mariotti, Thomas & Salanié, François & Attar, Andrea, 2014. "Nonexclusive competition under adverse selection," Theoretical Economics, Econometric Society, Econometric Society, vol. 9(1), January.
  4. Jaynes, Gerald D., 2011. "Equilibrium and Strategic Communication in the Adverse Selection Insurance Model," Working Papers, Yale University, Department of Economics 91, Yale University, Department of Economics.
  5. Frédéric Loss & Gwenaël Piaser, 2014. "Linear Prices Equilibria and Nonexclusive Insurance Market," Working Papers, Department of Research, Ipag Business School 2014-042, Department of Research, Ipag Business School.
  6. 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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