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Insurance and Information: Firms as a Commitment Device

Author

Listed:
  • A.L. Bovenberg

    (Tilburg University)

  • Coen N. Teulings

    (University of Amsterdam)

Abstract

We 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.

Suggested Citation

  • A.L. Bovenberg & Coen N. Teulings, 2001. "Insurance and Information: Firms as a Commitment Device," Tinbergen Institute Discussion Papers 01-020/3, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20010020
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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