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Insurance and Information: Firms as a Commitment Device

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  • Teulings, Coen
  • Bovenberg, Lans

Abstract

We explore the role of firms in insuring risk-averse workers. As a device that allows workers to commit to the delivery of their output, the firm arises endogenously as an alternative to the spot market if workers are sufficiently risk averse and the firm can base incentive payments on good information. Competition, however, may allow the spot market and explicit contracts to crowd out implicit insurance provided by the firm, even though the latter yields higher welfare. We explain why different governance structures coexist in quite homogeneous industries.

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  • Teulings, Coen & Bovenberg, Lans, 2002. "Insurance and Information: Firms as a Commitment Device," CEPR Discussion Papers 3441, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3441
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    Cited by:

    1. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2013. "Credit within the Firm," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 80(1), pages 211-247.

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    More about this item

    Keywords

    Insurance; Implicit contracts; Moral hazard; Principal agent; Commitment; Shirking;
    All these keywords.

    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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