IDEAS home Printed from
   My bibliography  Save this paper

Nonlinear Incentive Contracting in Walrasian Markets: A Cournot Approach


  • Hellwig, Martin

    () (Sonderforschungsbereich 504)


The paper studies insurance with moral hazard in the context of a Walrasian system of contingent-claims markets. The insurance buyer is modelled as a Cournot monopolist. Price-taking agents condition their expectations on market prices, as in models of rational-expectations equilibrium with asymmetric information. Thereby they correctly anticipate the accident probabilities that are associated with the different possible choices of the insurance buyer's net trades as these trades affect effort incentives. When there are many agents to share the insurance buyers risk, Cournot equilibrium outcomes are close to being second-best and close to outcomes under efficient bilateral contracting with risk neutral insurers. In contrast, if the insurance buyer is a price taker, equilibria are bounded away from being second-best or fail to exist.

Suggested Citation

  • Hellwig, Martin, 2000. "Nonlinear Incentive Contracting in Walrasian Markets: A Cournot Approach," Sonderforschungsbereich 504 Publications 00-42, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
  • Handle: RePEc:xrs:sfbmaa:00-42
    Note: This paper owes a lot to discussions that I have had over the years with Richard Arnott, Tilman Börgers, Winand Emons, Laurenz Kohlleppel, Joe Stiglitz, Thomas von Ungern-Sternberg, and especially Douglas Gale. I am grateful to all of them. I am also grateful for research support from the Deutsche Forschungsgemeinschaft through Sonderforschungsbereich 504 at the University of Mannheim.

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Hellwig, Martin F., 2005. "Nonlinear incentive provision in Walrasian markets: a Cournot convergence approach," Journal of Economic Theory, Elsevier, vol. 120(1), pages 1-38, January.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:00-42. 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: (Carsten Schmidt). General contact details of provider: .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.