Bertrand and Walras Equilibria Under Moral Hazard
AbstractWe consider a simple model of competition under moral hazard with constant return technologies. We consider preferences that are not separable in effort: marginal utility of income is assumed to increase with leisure, especially for high income levels. We show that, in this context, Bertrand competition may result in positive equilibrium profit. This result holds for purely idiosyncratic shocks when only deterministic contracts are considered and extends to unrestricted contract spaces in the presence of aggregate uncertainty. Finally, these findings have important consequences on the definition of an equilibrium. We show that, in this context, a Walrasian general equilibrium ï¿½ la Prescott-Townsend may fail to exist: any "equilibrium" must involve rationing.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by David K. Levine in its series Levine's Working Paper Archive with number 618897000000000748.
Date of creation: 30 Apr 2003
Date of revision:
Contact details of provider:
Web page: http://www.dklevine.com/
Other versions of this item:
- Alberto Bennardo & P.A. Chiappori, 2002. "Bertrand and Walras equilibria under moral hazard," CSEF Working Papers 87, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Bennardo, Alberto & Chiappori, Pierre-André, 2002. "Bertrand and Walras Equilibria Under Moral Hazard," CEPR Discussion Papers 3650, C.E.P.R. Discussion Papers.
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-05-02 (All new papers)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sanford Grossman & Oliver Hart, .
"An Analysis of the Principal-Agent Problem,"
Rodney L. White Center for Financial Research Working Papers
15-80, Wharton School Rodney L. White Center for Financial Research.
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
- Alberto Bisin & Danilo Guaitoli, 2004.
"Moral Hazard and Nonexclusive Contracts,"
RAND Journal of Economics,
The RAND Corporation, vol. 35(2), pages 306-328, Summer.
- Bisin, Alberto & Guaitoli, Danilo, 1998. "Moral Hazard and Non-Exclusive Contracts," CEPR Discussion Papers 1987, C.E.P.R. Discussion Papers.
- Alberto Bisin & Danilo Guaitoli, 1998. "Moral hazard and non-exclusive contracts," Economics Working Papers 345, Department of Economics and Business, Universitat Pompeu Fabra.
- Richard J. Arnott & Joseph E. Stiglitz, 1990.
"The Basic Analytics of Moral Hazard,"
NBER Working Papers
2484, National Bureau of Economic Research, Inc.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
- Arnott, R. & Stiglitz, J., 1994.
"Price Equilibrium, Efficiency, and Decentralizability in Insurance Markets with Moral Hazard,"
05, Laval - Laboratoire Econometrie.
- 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.
- Malcomson, James M, 1984. "Work Incentives, Hierarchy, and Internal Labor Markets," Journal of Political Economy, University of Chicago Press, vol. 92(3), pages 486-507, June.
- Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
- Richard J. Arnott & Joseph E. Stiglitz, 1988.
"Randomization with Asymmetric Information,"
NBER Working Papers
2507, National Bureau of Economic Research, Inc.
- Prescott, Edward C & Townsend, Robert M, 1984.
"Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard,"
Econometric Society, vol. 52(1), pages 21-45, January.
- Edward C Prescott & Robert M Townsend, 2010. "Pareto Optima and Competitive Equilibria With Adverse Selection and Moral Hazard," Levine's Working Paper Archive 2069, David K. Levine.
- Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
- Douglas Gale, 1994.
"Equilibria and Pareto Optima of Markets with Adverse Selection,"
0046, Boston University - Industry Studies Programme.
- Gale, Douglas, 1996. "Equilibria and Pareto Optima of Markets with Adverse Selection," Economic Theory, Springer, vol. 7(2), pages 207-35, February.
- Douglas Gale, 1996. "Equilibria and Pareto optima of markets with adverse selection (*)," Economic Theory, Springer, vol. 7(2), pages 207-235.
- MacLeod, W Bentley & Malcomson, James M, 1989.
"Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment,"
Econometric Society, vol. 57(2), pages 447-80, March.
- W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
- Dreze, Jacques H, 1975. "Existence of an Exchange Equilibrium under Price Rigidities," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 301-20, June.
- Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
- Gjesdal, Froystein, 1982. "Information and Incentives: The Agency Information Problem," Review of Economic Studies, Wiley Blackwell, vol. 49(3), pages 373-90, July.
- Edward Simpson Prescott & Robert M. Townsend, 1996. "Theory of the firm: applied mechanism design," Working Paper 96-02, Federal Reserve Bank of Richmond.
- Schlee, Edward & Chade, Hector, 2012.
"Optimal insurance with adverse selection,"
Econometric Society, vol. 7(3), September.
- Jerez, Belen, 2003.
"A dual characterization of incentive efficiency,"
Journal of Economic Theory,
Elsevier, vol. 112(1), pages 1-34, September.
- Magill, Michael & Quinzii, Martine, 2008.
"Normative properties of stock market equilibrium with moral hazard,"
Journal of Mathematical Economics,
Elsevier, vol. 44(7-8), pages 785-806, July.
- Martine Quinzii & Michael Magill, 1900. "Normative Properties Of Stock Market Equilibrium With Moral Hazard," Working Papers 82, University of California, Davis, Department of Economics.
- Joon Song, 2008. "Perks: Contractual Arrangements to Restrain Moral Hazard," Economics Discussion Papers 650, University of Essex, Department of Economics.
- Alger, Ingela & Weibull, Jörgen, 2007.
"Family ties, incentives and development: a model of coerced altruism,"
Working Paper Series in Economics and Finance
681, Stockholm School of Economics.
- Ingela Alger & Jörgen W. Weibull, 2007. "Family ties, incentives and development: A model of coerced altruism," Carleton Economic Papers 07-10, Carleton University, Department of Economics, revised 2008.
- Alberto Bisin & Piero Gottardi, 2006.
"Efficient Competitive Equilibria with Adverse Selection,"
Journal of Political Economy,
University of Chicago Press, vol. 114(3), pages 485-516, June.
- Alberto Bisin & Piero Gottardi, 2005. "Efficient Competitive Equilibria with Adverse Selection," CESifo Working Paper Series 1504, CESifo Group Munich.
- 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.
- Hellwig, Martin F., 2005. "Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach," Journal of Economic Theory, Elsevier, vol. 120(1), pages 1-38, January.
- Bennardo, Alberto & Piccolo, Salvatore, 2005.
"Competitive Markets with Endogenous Health Risks,"
CEPR Discussion Papers
5385, C.E.P.R. Discussion Papers.
- Calcagno, Riccardo & Wagner, Wolf, 2006. "Dispersed initial ownership and the efficiency of the stock market under moral hazard," Journal of Mathematical Economics, Elsevier, vol. 42(1), pages 36-45, February.
- Piero Gottardi & Alberto Bisin & Adriano Rampini, 2007.
"Managerial Hedging and Portfolio Monitoring,"
2007_24, Department of Economics, University of Venice "Ca' Foscari".
- Kilenthong, Weerachart T. & Townsend, Robert M., 2011.
"Information-constrained optima with retrading: An externality and its market-based solution,"
Journal of Economic Theory,
Elsevier, vol. 146(3), pages 1042-1077, May.
- Kilenthong, Weerachart & Townsend, Robert, 2010. "Information-Constrained Optima with Retrading: An Externality and Its Market-Based Solution," MPRA Paper 20725, University Library of Munich, Germany.
- Belén Jerez, 2003.
"Incentive Compatibility And Pricing Under Moral Hazard,"
Economics Working Papers
we035722, Universidad Carlos III, Departamento de Economía.
- Belen Jerez, 2005. "Incentive Compatibility and Pricing under Moral Hazard," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 28-47, January.
- Stéphane Gauthier & Guy Laroque, 2014. "On the value of randomization," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) hal-00969344, HAL.
- J. H. Abbring & P.-A. Chiappori & J. J. Heckman & J. Pinquet, 2002. "Testing for Moral Hazard on Dynamic Insurance Data," THEMA Working Papers 2002-24, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (David K. Levine).
If references are entirely missing, you can add them using this form.