Moral hazard and risk-sharing: risk-taking as an incentive tool

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Date

31 août 2010

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Type de document
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Source

HAL SHS (Sciences de l’Homme et de la Société)

Collection

Archives ouvertes

Organisation

Centre pour la communication scientifique directe

Licence

info:eu-repo/semantics/OpenAccess

Mots-clés En

Risk-Taking Informal Insurance Moral Hazard

Sujets proches En

Fortunes Riches Affluence Distribution of wealth

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Mohamed Belhaj et al., « Moral hazard and risk-sharing: risk-taking as an incentive tool », HAL SHS (Sciences de l’Homme et de la Société), ID : 10670/1.149d62...

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We examine how moral hazard impacts risk-sharing when risk-taking can be part of the mechanism design. In a two-agent model with binary effort, we show that moral hazard always increases risk-taking (that is the amount of wealth invested in a risky project) whereas the effect on risk-sharing (the amount of wealth transferred between agents) is ambiguous. Risk-taking therefore appears as a useful incentive tool. In particular, in the case of preferences exhibiting Constant Absolute Risk Aversion (CARA), moral hazard has no impact on risk-sharing and risk-taking is the unique mechanism used to solve moral hazard. Thus, risk-taking appears to be the prevailing incentive tool.

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