IDEAS home Printed from https://ideas.repec.org/p/hal/psewpa/halshs-00586739.html
   My bibliography  Save this paper

Sharing aggregate risks under moral hazard

Author

Listed:
  • Gabrielle Demange

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris-Jourdan Sciences Economiques - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the efficient design of insurance schemes in the presence of aggregate shocks and moral hazard. The population is divided into groups, the labour force in different sectors for instance. In each group, individuals are ex ante identical but are subject to idiosyncratic shocks. Without moral hazard, optimality requires (1) full insurance against idiosyncratic shocks, which gives rise to a representative agent for each group and (2) optimal sharing of macro-economic risks between these representative agents. The paper investigates what remains of this analysis when the presence of moral hazard conflicts with the full insurance of idiosyncratic shocks. In particular, how is the sharing of macro-economic risks across groups affected by the partial insurance against idiosyncratic risks? The design of unemployment insurance schemes in different economic sectors, and the design of pension annuities in an unfunded social security system are two potential applications.

Suggested Citation

  • Gabrielle Demange, 2008. "Sharing aggregate risks under moral hazard," PSE Working Papers halshs-00586739, HAL.
    • Handle: RePEc:hal:psewpa:halshs-00586739
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00586739
    as

    Download full text from publisher

    File URL: https://shs.hal.science/halshs-00586739/document
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Edmond Malinvaud, 1974. "The Allocation of Individual Risks in Large Markets," International Economic Association Series, in: Jacques H. Drèze (ed.), Allocation under Uncertainty: Equilibrium and Optimality, chapter 8, pages 110-125, Palgrave Macmillan.
    2. Prescott, Edward C & Townsend, Robert M, 1984. "Pareto Optima and Competitive Equilibria with Adverse Selection and Moral Hazard," Econometrica, Econometric Society, vol. 52(1), pages 21-45, January.
    3. Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
    4. Breeden, Douglas T & Litzenberger, Robert H, 1978. "Prices of State-contingent Claims Implicit in Option Prices," The Journal of Business, University of Chicago Press, vol. 51(4), pages 621-651, October.
    5. Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
    6. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
    7. Malinvaud, E, 1973. "Markets for an Exchange Economy with Individual Risks," Econometrica, Econometric Society, vol. 41(3), pages 383-410, May.
    8. Rogerson, William P, 1985. "Repeated Moral Hazard," Econometrica, Econometric Society, vol. 53(1), pages 69-76, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlos da Costa & Vitor Farinha Luz, 2018. "The Private Memory of Aggregate Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 27, pages 169-183, January.
    2. Bos, O & P. Schweinzer, 2012. "Risk pooling in redistributive agreements," Discussion Papers 12/17, Department of Economics, University of York.
    3. Carlos Guiné, 2014. "Global Systemically Important Insurers," EIOPA Financial Stability Report - Thematic Articles 2, EIOPA, Risks and Financial Stability Department.
    4. Vitor F. Luz & Carlos E. da Costa, 2010. "The Private Memory of Aggregate Shocks," 2010 Meeting Papers 368, Society for Economic Dynamics.
    5. Mohamed Belhaj & Renaud Bourl?s & Fr?d?ric Dero?an, 2014. "Risk-Taking and Risk-Sharing Incentives under Moral Hazard," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 58-90, February.
    6. Florian Scheuer, 2013. "Optimal Asset Taxes in Financial Markets with Aggregate Uncertainty," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 405-420, July.
    7. Olivier Bos & Béatrice Roussillon & Paul Schweinzer, 2016. "Agreeing on Efficient Emissions Reduction," Scandinavian Journal of Economics, Wiley Blackwell, vol. 118(4), pages 785-815, October.
    8. Vitor F. Luz & Carlos E. da Costa, 2011. "Separability and Memory: Micro Causes, Macro Consequences," 2011 Meeting Papers 916, Society for Economic Dynamics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ales, Laurence & Maziero, Pricila, 2016. "Non-exclusive dynamic contracts, competition, and the limits of insurance," Journal of Economic Theory, Elsevier, vol. 166(C), pages 362-395.
    2. Paolo Siconolfi & Aldo Rustichini, 2012. "Economies with Observable Types," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 57-71, January.
    3. Geoffrey Heal & Bengt Kriström, 2002. "Uncertainty and Climate Change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 22(1), pages 3-39, June.
    4. Bryan Ellickson & José Penalva-Zuasti, 1996. "Intertemporal Insurance," Center for Financial Institutions Working Papers 96-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
    5. Alberto Bisin & Piero Gottardi & Adriano A. Rampini, 2008. "Managerial Hedging and Portfolio Monitoring," Journal of the European Economic Association, MIT Press, vol. 6(1), pages 158-209, March.
    6. Attar, Andrea & Mariotti, Thomas & Salanié, François, 2021. "Competitive Nonlinear Pricing under Adverse Selection," TSE Working Papers 21-1201, Toulouse School of Economics (TSE), revised Aug 2022.
    7. Gerald A. Feltham & Peter O. Christensen, 1988. "Firm†specific information and efficient resource allocation," Contemporary Accounting Research, John Wiley & Sons, vol. 5(1), pages 133-169, September.
    8. José S. Penalva, 2003. "Implications of Dynamic Trading for Insurance Markets," Working Papers 83, Barcelona School of Economics.
    9. José Penalva, 2003. "Implications of dynamic trading for insurance markets," Economics Working Papers 720, Department of Economics and Business, Universitat Pompeu Fabra.
    10. Dubois, Pierre, 2002. "Consommation, partage de risque et assurance informelle : développements théoriques et tests empiriques récents," L'Actualité Economique, Société Canadienne de Science Economique, vol. 78(1), pages 115-149, Mars.
    11. Mordecai Kurz, 1997. "Social States of Belief and the Determinants of the Equity Risk Premium in A Rational Belief Equilibrium," Working Papers 97026, Stanford University, Department of Economics.
    12. Christopher Phelan, 2006. "Opportunity and Social Mobility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(2), pages 487-504.
    13. Robert Shimer & Ivan Werning, 2008. "Liquidity and Insurance for the Unemployed," American Economic Review, American Economic Association, vol. 98(5), pages 1922-1942, December.
    14. Sjur Didrik Flåm & Elmar G. Wolfstetter, 2015. "Liability Insurance and Choice of Cars: A Large Game Approach," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 17(6), pages 943-963, December.
    15. Borglin, Anders & Flåm, Sjur Didrik, 2007. "Risk exchange as a market or production game," Working Papers in Economics 09/07, University of Bergen, Department of Economics.
    16. Sanjay Banerji & Ngo Van Long, 2001. "Wealth Distribution, Entrepreneurship and Intertemporal Trade," CIRANO Working Papers 2001s-36, CIRANO.
    17. Christensen, Peter Ove & Larsen, Kasper & Munk, Claus, 2012. "Equilibrium in securities markets with heterogeneous investors and unspanned income risk," Journal of Economic Theory, Elsevier, vol. 147(3), pages 1035-1063.
    18. Bisin, A. & Geanakoplos, J.D. & Gottardi, P. & Minelli, E. & Polemarchakis, H., 2011. "Markets and contracts," Journal of Mathematical Economics, Elsevier, vol. 47(3), pages 279-288.
    19. Alberto Bisin & Danilo Guaitoli, 2004. "Moral Hazard and Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 306-328, Summer.
    20. Borys Grochulski, 2010. "On the optimality of Ramsey taxes in Mirless economies," Working Paper 10-14, Federal Reserve Bank of Richmond.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:psewpa:halshs-00586739. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.