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Risk-Taking and Risk-Sharing Incentives under Moral Hazard

Author

Listed:
  • Mohamed Belhaj
  • Renaud Bourl?s
  • Fr?d?ric Dero?an

Abstract

This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in developing countries, who share risk and decide individually upon the adoption of a risky technology. The paper mainly shows that the impact of moral hazard on risk crucially depends on the observability of investment risk, whereas the impact on transfers is much more utility dependent.

Suggested Citation

  • 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.
    • Handle: RePEc:aea:aejmic:v:6:y:2014:i:1:p:58-90
    Note: DOI: 10.1257/mic.6.1.58
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    References listed on IDEAS

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    1. Pierre Dubois & Bruno Jullien & Thierry Magnac, 2008. "Formal and Informal Risk Sharing in LDCs: Theory and Empirical Evidence," Econometrica, Econometric Society, vol. 76(4), pages 679-725, July.
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    Cited by:

    1. Kevin T. Jackson, 2026. "From Narrative Unity to Beatitude: Non-Redeemable Moral Loss and the Ethics of Time in Organizations," Humanistic Management Journal, Springer, vol. 11(1), pages 75-96, April.
    2. Yan Ji, 2017. "Job Search under Debt: Aggregate Implications of Student Loans," 2017 Meeting Papers 222, Society for Economic Dynamics.
    3. Keenan, Donald C. & Snow, Arthur, 2012. "Ross risk vulnerability for introductions and changes in background risk," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 197-206.
    4. Bernard Sinclair-Desgagn� & Sandrine Spaeter, 2018. "Incentive Contracts and Downside Risk Sharing," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(1), pages 79-107.

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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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