Screening Risk Averse Agents Under Moral Hazard PDF Download

Author: Bruno Jullien
Publisher:
ISBN:
Category : Agency (Law)
Languages : en
Pages : 48

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Author: Svetlana Danilkina
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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In this paper we consider a model where a risk-neutral principal devises a contract for a risk neutral agent who can exert effort along different dimensions. On the top of that the agent possesses multidimensional private information about her cost of effort. We show that as long as effort is exerted along different dimensions that exceed in number the available performance measures, hidden action prevents implementing the second best solution, obtained under pure adverse selection situation, even if both parties are risk neutral and private information of the agent is not correlated with the production technology. Therefore, hidden action leads to additional welfare loss. The result implies that it can be more efficient to compensate employees on the basis of a variety of performance measures rather than base their compensation on a "bottom-line" measure (e.g. their contribution to the company's profits).

Author: Rajiv D. Banker
Publisher:
ISBN:
Category :
Languages : en
Pages : 58

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This paper proposes a principal-agent model of moral hazard and adverse selection that introduces the notion of screening, which is distinct from sorting; and distinguishes between ability that is privately known by the agent versus general ability that is observable by the principal and market. Sorting is the traditional process by which the adverse selection problem is resolved. Screening is the process we propose by which agents that are deemed to be unsuitable are rejected. Used in conjunction with sorting, we consider ex-ante screening on the basis of the measure of general ability; and ex-post screening on the basis of the private measure of ability. We find that the principal may favor an agent with high or low general ability, but always prefers an agent with superior private ability. We derive the properties of the ex-ante and ex-post screening rules as they relate to the characteristics of the principal-agent relationship. Surprisingly, a positive relationship between the private and general measures of ability tends to imply that general ability has a negative effect on the incentives and compensation of the agent, as well as the expected outcome and profit of the firm. Finally, we discuss the econometric methods by which empirical studies of executive compensation should be adjusted to take into account the fact that CEOs were selected for their positions.

Author: Bernd Theilen
Publisher:
ISBN:
Category :
Languages : en
Pages : 30

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Author: Amy Finkelstein
Publisher: Columbia University Press
ISBN: 0231538685
Category : Medical
Languages : en
Pages : 161

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Addressing the challenge of covering heath care expenses—while minimizing economic risks. Moral hazard—the tendency to change behavior when the cost of that behavior will be borne by others—is a particularly tricky question when considering health care. Kenneth J. Arrow’s seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein—recognized as one of the world’s foremost experts on the topic—here examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow. “Reads like a fireside chat among a group of distinguished, articulate health economists.” —Choice

Author: Martin Gaynor
Publisher:
ISBN:
Category : Competition
Languages : en
Pages : 32

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Author: Wendy Edelberg
Publisher:
ISBN:
Category : Consumer credit
Languages : en
Pages : 62

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Author: John Eatwell
Publisher: Springer
ISBN: 1349202150
Category : Business & Economics
Languages : en
Pages : 321

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This is an extract from the 4-volume dictionary of economics, a reference book which aims to define the subject of economics today. 1300 subject entries in the complete work cover the broad themes of economic theory. This volume concentrates on the topic of allocation information and markets.

Author: Mingyan Liu
Publisher: Springer Nature
ISBN: 3031023811
Category : Computers
Languages : en
Pages : 127

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Book Description
This book provides an introduction to the theory and practice of cyber insurance. Insurance as an economic instrument designed for risk management through risk spreading has existed for centuries. Cyber insurance is one of the newest sub-categories of this old instrument. It emerged in the 1990s in response to an increasing impact that information security started to have on business operations. For much of its existence, the practice of cyber insurance has been on how to obtain accurate actuarial information to inform specifics of a cyber insurance contract. As the cybersecurity threat landscape continues to bring about novel forms of attacks and losses, ransomware insurance being the latest example, the insurance practice is also evolving in terms of what types of losses are covered, what are excluded, and how cyber insurance intersects with traditional casualty and property insurance. The central focus, however, has continued to be risk management through risk transfer, the key functionality of insurance. The goal of this book is to shift the focus from this conventional view of using insurance as primarily a risk management mechanism to one of risk control and reduction by looking for ways to re-align the incentives. On this front we have encouraging results that suggest the validity of using insurance as an effective economic and incentive tool to control cyber risk. This book is intended for someone interested in obtaining a quantitative understanding of cyber insurance and how innovation is possible around this centuries-old financial instrument.

Author: Georges Dionne
Publisher: Springer Science & Business Media
ISBN: 1461401550
Category : Business & Economics
Languages : en
Pages : 1133

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Book Description
This new edition of the Handbook of Insurance reviews the last forty years of research developments in insurance and its related fields. A single reference source for professors, researchers, graduate students, regulators, consultants and practitioners, the book starts with the history and foundations of risk and insurance theory, followed by a review of prevention and precaution, asymmetric information, risk management, insurance pricing, new financial innovations, reinsurance, corporate governance, capital allocation, securitization, systemic risk, insurance regulation, the industrial organization of insurance markets and other insurance market applications. It ends with health insurance, longevity risk, long-term care insurance, life insurance financial products and social insurance. This second version of the Handbook contains 15 new chapters. Each of the 37 chapters has been written by leading authorities in risk and insurance research, all contributions have been peer reviewed, and each chapter can be read independently of the others.