Insurance and Information: Firms as a Commitment Device
AbstractWe explore the role of firms in insuring non-verifiable output. As a device that allows workers to commit to thedelivery of their output, the firm arises endogenously as an alternative to the market if workers are sufficiently riskaverse and the firm can base its incentive payments on good information. Competition, however, may allow themarket and explicit contracts to crowd out implicit insurance, even though the latter yields higher welfare.Integrating the principal-agent and shirking models, we explain why different contracting modes coexist in quitehomogeneous industries.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 01-020/3.
Date of creation: 08 Feb 2001
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Insurance; implicit contracts; moral hazard; principal agent; commitment; shirking;
Other versions of this item:
- Bovenberg, A Lans & Teulings, Coen N, 2002. "Insurance and Information: Firms as a Commitment Device," CEPR Discussion Papers 3441, C.E.P.R. Discussion Papers.
- Bovenberg, A.L. & Teulings, C.N., 2002. "Insurance and Information: Firms as a Commitment Device," Discussion Paper 2002-36, Tilburg University, Center for Economic Research.
- D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2001-05-02 (All new papers)
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