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The Welfare Economics of Moral Hazard

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  • Richard Arnott
  • Joseph Stiglitz

Abstract

This paper shows that, except in certain limiting cases, competitive equilibrium with moral hazard is constrained inefficient. The first section compares the competitive equilibrium and the constrained social optimum in a fairly general model, and identifies six types of market failure. Each of the subsequent sections focusses on a particular market failure.

Suggested Citation

  • Richard Arnott & Joseph Stiglitz, 1986. "The Welfare Economics of Moral Hazard," Working Paper 635, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:635
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    References listed on IDEAS

    as
    1. Braverman, Avishay & Stiglitz, Joseph E, 1982. "Sharecropping and the Interlinking of Agrarian Markets," American Economic Review, American Economic Association, vol. 72(4), pages 695-715, September.
    2. Bruce C. Greenwald & Joseph E. Stiglitz, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 101(2), pages 229-264.
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