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Insurance and Information: Firms as a Commitment Device

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  • Bovenberg, A.L.
  • Teulings, C.N.

    (Tilburg University, Center for Economic Research)

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 suciently 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 dierent governance structures coexist in quite homogeneous industries.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2002-36.

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Date of creation: 2002
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Handle: RePEc:dgr:kubcen:200236

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Web page: http://center.uvt.nl

Related research

Keywords: information; labour; insurance; moral hazard; contracts; principal agent theory;

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  1. Baker, George & Gibbons, Robert & Murphy, Kevin J, 1994. "Subjective Performance Measures in Optimal Incentive Contracts," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1125-56, November.
  2. Allen, Douglas W & Lueck, Dean, 1999. "The Role of Risk in Contract Choice," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 704-36, October.
  3. MacLeod, W Bentley & Malcomson, James M, 1989. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Econometrica, Econometric Society, vol. 57(2), pages 447-80, March.
  4. Andrei Shleifer & Lawrence H. Summers, 1987. "Breach of Trust in Hostile Takeovers," NBER Working Papers 2342, National Bureau of Economic Research, Inc.
  5. 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.
  6. Krueger, Alan B, 1991. "Ownership, Agency, and Wages: An Examination of Franchising in the Fast Food Industry," The Quarterly Journal of Economics, MIT Press, vol. 106(1), pages 75-101, February.
  7. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
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Cited by:
  1. Luigi Guiso & Luigi Pistaferri & Fabiano Schivardi, 2010. "Credit within the Firm," EIEF Working Papers Series 1008, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2010.

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