Competitive Markets without Commitment
In the presence of a time-inconsistency problem with agency contracts, we show that competitive markets can implement allocations that Pareto-dominate those achieved by a benevolent government, and they induce more effort. We analyze a model with moral hazard and a two-sided lack of commitment. After agents have chosen their work, firms can modify contracts and agents can switch firms. If the ex post market outcome satisfies a weak notion of competitiveness and sufficiently separates individuals, it is Pareto superior to a government's allocation with a complete breakdown of incentives. Moreover, competitive markets without commitment implement more effort in equilibrium under general conditions.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
- Dhaval Dave & Robert Kaestner, 2009.
"Health insurance and ex ante moral hazard: evidence from Medicare,"
International Journal of Health Economics and Management,
Springer, vol. 9(4), pages 367-390, December.
- Dhaval Dave & Robert Kaestner, 2006. "Health Insurance and Ex Ante Moral Hazard: Evidence from Medicare," NBER Working Papers 12764, National Bureau of Economic Research, Inc.
- Oliver Hart & Andrei Shleifer & Robert Vishny, 1996.
"The Proper Scope of Government: Theory and an Application to Prisons,"
Harvard Institute of Economic Research Working Papers
1778, Harvard - Institute of Economic Research.
- Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1997. "The Proper Scope of Government: Theory and an Application to Prisons," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1127-1161.
- Oliver Hart & Andrei Shleifer & Robert W. Vishny, 1996. "The Proper Scope of Government: Theory and an Application to Prisons," NBER Working Papers 5744, National Bureau of Economic Research, Inc.
- Asheim, G.B. & Nilssen, T., 1994.
"Non-Discriminating Renegotiation in a Competitive Insurance Market,"
25, Laval - Laboratoire Econometrie.
- Asheim, Geir B. & Nilssen, Tore, 1996. "Non-discriminating renegotiation in a competitive insurance market," European Economic Review, Elsevier, vol. 40(9), pages 1717-1736, December.
- Asheim, G.B. & Nilssen, T., 1995. "Non-Discriminating Renogociation in a Competitive Insurance Market," Memorandum 03/1995, Oslo University, Department of Economics.
- Robin Boadway & Nicolas Marceau & Maurice Marchand, 1992.
"Investment in Education and the Time Inconsistency of Redistributive Tax Policy,"
860, Queen's University, Department of Economics.
- Boadway, Robin & Marceau, Nicolas & Marchand, Maurice, 1996. "Investment in Education and the Time Inconsistency of Redistributive Tax Policy," Economica, London School of Economics and Political Science, vol. 63(250), pages 171-189, May.
- Boadway, R. & Marceau, N. & Marchand, M., "undated". "Investment in education and the time inconsistency of redistributive tax policy," CORE Discussion Papers RP 1219, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Mathias Dewatripont, 1989. "Renegotiation and information revelation over time: the case of optimal labor contacts," ULB Institutional Repository 2013/9573, ULB -- Universite Libre de Bruxelles.
- W. Henry Chiu & Edi Karni, 1998. "Endogenous Adverse Selection and Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 806-827, August.
- Mathias Dewatripont, 1989. "Renegotiation and Information Revelation Over Time: The Case of Optimal Labor Contracts," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 589-619.
When requesting a correction, please mention this item's handle: RePEc:ucp:jpolec:doi:10.1086/658497. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Journals Division)
If references are entirely missing, you can add them using this form.