TY  - RPRT
        AU  - Bertola, Giuseppe
AU  - Koeniger, Winfried
        TI  - Hidden Insurance in a Moral Hazard Economy
        PY  - 2013/Dec/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 7806
        UR  - https://www.iza.org/publications/dp7806
        AB  - We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first- and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts.
        KW  - first-order approach
KW  - principal agent
KW  - hidden action
KW  - constrained efficiency
        ER  -