Aggregate and Idiosyncratic Risk and the Behavior of Individual Preferences under Moral Hazard
We consider the effect of alternative individual preference towards effort conditional on aggregate risk in a principal-agent relationship under moral hazard. We find that agents can explore a negative correlation between individual preference towards effort and aggregate risk to further diversify idiosyncratic risk and increase expected utility under moral hazard. The variation of individual preference towards effort may mitigate the impact of moral hazard on the risk premium, but we find this to be quantitatively small.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: Medford, MA 02155, USA|
Phone: (617) 627-3560
Fax: (617) 627-3917
Web page: http://ase.tufts.edu/economics
References listed on IDEAS
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.:
- Oliver Hart & Bengt Holmstrom, 1986. "The Theory of Contracts," Working papers 418, Massachusetts Institute of Technology (MIT), Department of Economics.
- Bianconi, Marcelo, 2001.
"Heterogeneity, Efficiency and Asset Allocation with Endogenous Labor Supply: The Static Case,"
University of Manchester, vol. 69(3), pages 253-68, June.
- Marcelo Bianconi, 1999. "Heterogeneity, Efficiency, and Asset Allocation with Endogenous Labor Supply: The Static Case," Computing in Economics and Finance 1999 354, Society for Computational Economics.
- Oliver Hart & John Moore, 1999.
"Foundations of Incomplete Contracts,"
Review of Economic Studies,
Oxford University Press, vol. 66(1), pages 115-138.
- Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," NBER Working Papers 6726, National Bureau of Economic Research, Inc.
- Oliver Hart & John Moore, 1998. "Foundations of incomplete contracts," LSE Research Online Documents on Economics 19354, London School of Economics and Political Science, LSE Library.
- Oliver Hart & John Moore, 1998. "Foundations of Incomplete Contracts," Harvard Institute of Economic Research Working Papers 1846, Harvard - Institute of Economic Research.
- Deaton, A., 1989.
"Saving And Liquidity Constraints,"
153, Princeton, Woodrow Wilson School - Public and International Affairs.
- Jewitt, Ian, 1988. "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 56(5), pages 1177-90, September.
- Bengt Holmstrom, 1997.
"Moral Hazard and Observability,"
Levine's Working Paper Archive
1205, David K. Levine.
- Pischke, Jorn-Steffen, 1995.
"Individual Income, Incomplete Information, and Aggregate Consumption,"
Econometric Society, vol. 63(4), pages 805-40, July.
- Pischke, J., 1992. "Individual Income, Incomplete Information, and Aggregate Consumption," Discussion Paper 1992-38, Tilburg University, Center for Economic Research.
- Pischke, J.S., 1993. "Individual Income, Incomplete Information, and Aggregate Consumption," Working papers 93-16, Massachusetts Institute of Technology (MIT), Department of Economics.
- Pishke, J.S., 1992. "Individual Income, Incomplete Information and Aggregate Consumption," Papers 9238, Tilburg - Center for Economic Research.
- Pischke, Jörn-Steffen, 1991. "Individual income, incomplete information, and aggregate consumption," ZEW Discussion Papers 91-07, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
- Christopher Phelan, 1994. "Incentives and Aggregate Shocks," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 681-700.
- Bianconi, Marcelo, 2003.
"Private information, growth, and asset prices with stochastic disturbances,"
International Review of Economics & Finance,
Elsevier, vol. 12(1), pages 1-24.
- Marcelo Bianconi, 2003. "Private Information, Growth and Asset Prices with Stochastic Disturbances," Discussion Papers Series, Department of Economics, Tufts University 0301, Department of Economics, Tufts University.
- Pierpaolo Battigalli & Giovanni Maggi, 2002. "Rigidity, Discretion, and the Costs of Writing Contracts," American Economic Review, American Economic Association, vol. 92(4), pages 798-817, September.
- Maskin, Eric & Tirole, Jean, 1992. "The Principal-Agent Relationship with an Informed Principal, II: Common Values," Econometrica, Econometric Society, vol. 60(1), pages 1-42, January.
- Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-67, November.
When requesting a correction, please mention this item's handle: RePEc:tuf:tuftec:0410. 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: (Caroline Kalogeropoulos)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.