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American Economic Journal: Microeconomics: Vol. 6 No. 1 (February 2014)

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Risk-Taking and Risk-Sharing Incentives under Moral Hazard

Article Citation

Belhaj, Mohamed, Renaud Bourlès, and Frédéric Deroïan. 2014. "Risk-Taking and Risk-Sharing Incentives under Moral Hazard." American Economic Journal: Microeconomics, 6(1): 58-90.

DOI: 10.1257/mic.6.1.58

Abstract

This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in developing countries, who share risk and decide individually upon the adoption of a risky technology. The paper mainly shows that the impact of moral hazard on risk crucially depends on the observability of investment risk, whereas the impact on transfers is much more utility dependent.

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Authors

Belhaj, Mohamed (Aix-Marseille U and EHESS, Paris)
Bourlès, Renaud (Aix-Marseille U and EHESS, Paris)
Deroïan, Frédéric (Aix-Marseille U and EHESS, Paris)

JEL Classifications

D81: Criteria for Decision-Making under Risk and Uncertainty
D82: Asymmetric and Private Information; Mechanism Design
D86: Economics of Contract: Theory
G22: Insurance; Insurance Companies; Actuarial Studies

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