scholarly journals Markov-Perfect Risk Sharing, Moral Hazard and Limited Commitment

2011 ◽  
Author(s):  
Fernando M. Martin ◽  
Alexander K. Karaivanov
Keyword(s):  
Moral Hazard ◽  
Risk Sharing ◽  
Limited Commitment ◽  
Markov Perfect

scholarly journals Variation margins, fires sales, and information-constrained optimality

2020 ◽  
Author(s):  
Bruno Biais ◽  
Florian Heider ◽  
Marie Hoerova
Keyword(s):  
Moral Hazard ◽  
Risk Sharing ◽  
Asset Prices ◽  
Counterparty Risk ◽  
Fire Sales ◽  
Risk Protection ◽  
Incentive Constraints

Abstract In order to share risk, protection buyers trade derivatives with protection sellers. Protection sellers’ actions affect the riskiness of their assets, which can create counterparty risk. Because these actions are unobservable, moral hazard limits risk sharing. To mitigate this problem, privately optimal derivative contracts involve variation margins. When margins are called, protection sellers must liquidate some assets, depressing asset prices. This tightens the incentive constraints of other protection sellers and reduces their ability to provide insurance. Despite this fire-sale externality, equilibrium is information-constrained efficient. Investors, who benefit from buying assets at fire-sale prices, optimally supply insurance against the risk of fire sales.

Disclosure and Secrecy in Employee Monitoring

2010 ◽  
Vol 22 (1) ◽  
pp. 187-208
Author(s):  
Mitchell A. Farlee
Keyword(s):  
Risk Aversion ◽  
Moral Hazard ◽  
Monitoring System ◽  
Risk Premium ◽  
Risk Sharing ◽  
Limited Liability ◽  
Efficient Production ◽  
System A ◽  
Liability Risk ◽  
Employee Monitoring

ABSTRACT: Disclosure and monitoring policy are studied, where disclosure relates to information about the monitoring system. A moral hazard model is presented where employee monitoring occurs with some exogenous probability and the owner privately learns whether he will be monitoring before the employee chooses his productive action. Disclosure policy is an owner choice between revealing to the employee whether he will be monitoring before the action (Disclosure) or remaining silent (Secrecy). The results rely on the joint presence of risk aversion and limited liability. Risk aversion creates an efficiency/risk tradeoff where secrecy obtains risk-sharing benefits. Limited liability reduces these benefits, allowing preference for disclosure. Lower monitoring probabilities increase the risk premium required to obtain effort with secrecy. For small monitoring probabilities, disclosure is preferred even though less efficient production is achieved, because disclosure provides a greater risk-sharing benefit. For high monitoring probabilities, secrecy is preferred because it leads to greater efficiency despite a greater risk premium.

The Wrong Shape of Insurance? What Cross-Sectional Distributions Tell Us about Models of Consumption Smoothing

2013 ◽  
Vol 5 (4) ◽  
pp. 107-140 ◽  
Author(s):  
Tobias Broer
Keyword(s):  
Risk Sharing ◽  
Limited Commitment ◽  
Cross Sectional ◽  
Joint Distributions ◽  
Insurance Contracts ◽  
Moment Measures ◽  
Method Of Moments Estimation ◽  
Estimated Risk ◽  
Standard Models ◽  
Insurance Model

This paper shows how two standard models of consumption risk-sharing—self-insurance through borrowing and saving and limited commitment to insurance contracts—replicate similarly well the standard, second-moment measures of insurance observed in US micro data. A nonparametric analysis, however, reveals strongly contrasting and counterfactual joint distributions of consumption, income and wealth. Method of moments estimation shows how measurement error in consumption eliminates excessive skewness and smoothness of consumption growth. Moreover, counterfactual nonlinearities disappear at high-estimated risk aversion under self-insurance, but are a robust feature of limited commitment. Its “shape of insurance” thus argues in favor of the self-insurance model. (JEL D14, D81, D91, G22, E21)

RISK-SHARING MATCHING AND MORAL HAZARD

2017 ◽  
Vol 70 (2) ◽  
pp. 165-174 ◽  
Author(s):  
Pu Chen ◽  
Sanxi Li ◽  
Bing Ye
Keyword(s):  
Moral Hazard ◽  
Risk Sharing
Sign in / Sign up

Export Citation Format

Share Document