Download or read book Moral Hazard Followed by Adverse Selection with Multiple Agents written by Shirō Hagihara and published by . This book was released on 2007 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Moral Hazard in Health Insurance written by Amy Finkelstein and published by Columbia University Press. This book was released on 2014-12-02 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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
Download or read book Rewarding Success and Failure written by Fahad Khalil and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A principal hires an agent to learn about the cost of a project (experimentation) and then to execute it (production). The agent is privately informed about the probability that the cost is low, with the high-type agent being relatively more optimistic than the low type. The agent also engages in costly experimentation over time to uncover the true cost. Thus, there is both adverse selection and moral hazard. Moral hazard requires the principal to reward success in experimentation, but adverse selection may induce the principal to also reward failure in experimentation. We find that the relative probability of failure across the agent's types monotonically increases over time allowing the principal to use the timing of failure as a screening instrument despite the presence of moral hazard. Therefore, both success and failure are rewarded with different payments and a specific timing in the optimal contract. We also consider whether it may be optimal to separate experimentation and production between two different agents. Having the same agent working on both tasks enables the principal to use the adverse selection rent to address moral hazard. If adverse selection is severe, yielding a large rent, the principal can satisfy the moral hazard constraints by spreading the adverse selection rent over the duration of experimentation. Therefore, integrating experimentation and production is optimal when adverse selection is severe.
Download or read book Screening Versus Sorting in a Principal Agent Model with Moral Hazard and Adverse Selection written by Rajiv D. Banker and published by . This book was released on 2014 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Essays in Accounting Theory in Honour of Joel S Demski written by Rick Antle and published by Springer Science & Business Media. This book was released on 2007-02-15 with total page 334 pages. Available in PDF, EPUB and Kindle. Book excerpt: The integration of accounting and the economics of information developed by Joel S. Demski and those he inspired has revolutionized accounting thought. This volume collects papers on accounting theory in honor of Professor Demski. The book also contains an extensive review of Professor Demski’s own contributions to the theory of accounting over the past four decades.
Download or read book Payment Schemes and Moral Hazard written by James Foust and published by . This book was released on 2013 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: In a principal-agent relationship, the principal offers a take-it-or-leave-it contract to the agent, who decides to either accept it or not. In game theory terminology, the principal agent relationship is a Stackelberg game in which the principal is the leader, proposing the contract, and the agent is the follower, choosing to accept or reject the proposal. Examples of such relationships are plentiful, such as a principal bank manager hiring an agent employee to work as a teller, a principal land-owner acting hiring an agent farmer to grow crops on her land, or an insurance company offering a home insurance plan to a homeowner. The principal-agent problem concerns how the principal should structure the proposed contract to best incentivize the agent to perform in the way the principal would prefer, taking into account that there are informational asymmetries between the principal and the agent due to the agent having some kind of "private information." Information asymmetries between principal and agent fall into two categories: the agent might have private information about their own characteristics, which gives rise to adverse selection problems; or the agent might have private information about what actions he takes after agreeing to the contract, which gives rise to moral hazard problems. In this paper, I focus on a model with moral hazard. The texts by Kreps and Salanié both offer good expositions of canonical adverse selection and moral hazard problems, which I used as a starting point for this paper. The survey of different extensions of the principal-agent model by Sappington provided a high-level guide to different sub-problems and primary sources. To motivate the model analyzed in this paper, suppose you own several tracts of land that are suitable for agriculture. You want to set up farms on these tracts of land, but you lack the time or expertise to farm the land yourself. You decide, then, to hire several farmers to set up and manage farms on your land. The farmers work year-round and, come harvest time, you pay each of them a sum of money based on their total production. Your challenge is to decide how much money to pay each farmer. Ideally, you would like to be able to pay each worker for the amount of effort that they put in. Unfortunately, you are only able to observe each farmer's output, and there are factors other than the farmer's effort level that affect output. For instance, the amount of rainfall is a random variable that affects all farmers' output equally, but which you are unable to observe. There are also idiosyncratic random variables unique to each farmer that represent the effects of soil condition, pests, and other similar concerns on the tract of land that farmer is working. All else equal, each farmer would prefer to work as little as possible, because they find working displeasurable. As the principal, however, you want the farmers to work as hard as is necessary to maximize your profits. The problem you face is how to structure the farmers' payment scheme so as to align their incentives with your own. The following analysis will compare individual contracts, in which each agent's payment is based only on the realized magnitude of their output, and tournament payment schemes, in which each agent's payment is based only on the ordinal ranking of their realized output relative to that of all other agents'. Much of the model notation as well as the results from Section 5 are an expanded exposition of results from a paper by Green and Stokey. Lazear and Rosen provided helpful intuition for the comparison of contracts and tournaments, and some of the results from earlier sections of the paper are due to Grossman and Hart.
Download or read book Foundations of Insurance Economics written by Georges Dionne and published by Springer Science & Business Media. This book was released on 1992 with total page 748 pages. Available in PDF, EPUB and Kindle. Book excerpt: Economic and financial research on insurance markets has undergone dramatic growth since its infancy in the early 1960s. Our main objective in compiling this volume was to achieve a wider dissemination of key papers in this literature. Their significance is highlighted in the introduction, which surveys major areas in insurance economics. While it was not possible to provide comprehensive coverage of insurance economics in this book, these readings provide an essential foundation to those who desire to conduct research and teach in the field. In particular, we hope that this compilation and our introduction will be useful to graduate students and to researchers in economics, finance, and insurance. Our criteria for selecting articles included significance, representativeness, pedagogical value, and our desire to include theoretical and empirical work. While the focus of the applied papers is on property-liability insurance, they illustrate issues, concepts, and methods that are applicable in many areas of insurance. The S. S. Huebner Foundation for Insurance Education at the University of Pennsylvania's Wharton School made this book possible by financing publication costs. We are grateful for this assistance and to J. David Cummins, Executive Director of the Foundation, for his efforts and helpful advice on the contents. We also wish to thank all of the authors and editors who provided permission to reprint articles and our respective institutions for technical and financial support.
Download or read book Insurance Contracting with the Coexistence of Adverse Selection and Moral Hazard written by Zhiqiang Yan and published by . This book was released on 2014 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: The asymmetric information problem has been widely discussed in the context of insurance markets. Most of previous research usually treats adverse selection and moral hazard separately, though it is quite possible that they may coexist and interact with each other. In this paper, we build a principal-agent model to examine optimal contracts in a competitive insurance market facing adverse selection and moral hazard simultaneously. We apply the change-of-variable method and the Kuhn-Tucker conditions to solve the optimization programs and find that there are several forms of separating Nash equilibria, although separating Nash equilibria may not exist. Our model brings richer equilibria and retains some properties in the benchmark models of pure adverse selection and pure moral hazard. For example, no agent is offered full insurance, and the positive correlation between insurance coverage and risk type still holds. Our study on comparative statics indicates that, under some conditions, the optimal indemnity and premium, in general, decrease with the disutility, increase with the potential loss and decrease with the intial wealth of the insured.
Download or read book The Economics of Contracts second edition written by Bernard Salanie and published by MIT Press. This book was released on 2017-02-17 with total page 257 pages. Available in PDF, EPUB and Kindle. Book excerpt: A concise introduction to the theory of contracts, emphasizing basic tools that allow the reader to understand the main theoretical models; revised and updated throughout for this edition. The theory of contracts grew out of the failure of the general equilibrium model to account for the strategic interactions among agents that arise from informational asymmetries. This popular text, revised and updated throughout for the second edition, serves as a concise and rigorous introduction to the theory of contracts for graduate students and professional economists. The book presents the main models of the theory of contracts, particularly the basic models of adverse selection, signaling, and moral hazard. It emphasizes the methods used to analyze the models, but also includes brief introductions to many of the applications in different fields of economics. The goal is to give readers the tools to understand the basic models and create their own. For the second edition, major changes have been made to chapter 3, on examples and extensions for the adverse selection model, which now includes more thorough discussions of multiprincipals, collusion, and multidimensional adverse selection, and to chapter 5, on moral hazard, with the limited liability model, career concerns, and common agency added to its topics. Two chapters have been completely rewritten: chapter 7, on the theory of incomplete contracts, and chapter 8, on the empirical literature in the theory of contracts. An appendix presents concepts of noncooperative game theory to supplement chapters 4 and 6. Exercises follow chapters 2 through 5. Praise for the previous edition: “The Economics of Contracts offers an excellent introduction to agency models. Written by one of the leading young researchers in contact theory, it is rigorous, clear, concise, and up-to-date. Researchers and students who want to learn about the economics of incentives will want to read this primer.”—Jean Tirole, Institut D'Économie Industrielle, Universite des Sciences Sociales, France “Students will find this a very useful introduction to the ideas of contract theory. Salanié has managed to summarize a large amount of material in a relatively short number of pages in a highly accessible and readable manner.”—Oliver Hart, Professor of Economics, Harvard University
Download or read book Relative Weights on Performance Measures in a Principal Agent Model with Moral Hazard and Adverse Selection written by Rajiv D. Banker and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the role of multiple measures of performance in a principal-agent model incorporating both moral hazard and adverse selection. The outcome of interest to the principal depends stochastically on the agent's unobservable ability and effort, while the principal implements a contract contingent on two noisy measures of the outcome. There are three main findings. First, the weights assigned the performance measures are reduced in the presence of adverse selection because the informational rent paid to the agent lowers the return to the principal of hiring the agent, but it does not affect how informative one signal is relative to another. Second, the weights assigned the signals are decreasing in the sensitivity of performance to ability. Third, a signal is assigned more weight if and only if it is more precise and sensitive to the agent's effort; thus, the Banker and Datar (1989) result is robust to the introduction of adverse selection. An empirical test of the model is provided in the context of the CEO pay-for-performance sensitivity and the investment opportunities set (IOS) of the firms they manage. If high IOS firms are more ability-intensive, the model predicts the weights on the performance measures are decreasing in IOS. We examine a sample of 12,221 firm-year observations for 1,411 firms spanning the period 1992-2006 obtained from ExecuComp, CRSP, and Compustat. In agreement with the model, we find that CEO compensation is less sensitive to accounting and stock returns in high IOS firms.
Download or read book Allocation Information and Markets written by John Eatwell and published by Springer. This book was released on 1989-09-21 with total page 321 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Adverse Selection in Insurance Contracting written by Georges Dionne and published by . This book was released on 2012 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Reinsurance Contracting with Adverse Selection and Moral Hazard written by Zhiqiang Yan and published by . This book was released on 2009 with total page 127 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation includes two essays on adverse selection and moral hazard problems in reinsurance markets. The first essay builds a competitive principal-agent model that considers adverse selection and moral hazard jointly, and characterizes graphically various forms of separating Nash equilibria. In the second essay, we use panel data on U.S. property liability reinsurance for the period 1995-2000 to test for the existence of adverse selection and moral hazard. We find that (1) adverse selection is present in private passenger auto liability reinsurance market and homeowners reinsurance market, but not in product liability reinsurance market; (2) residual moral hazard does not exist in all the three largest lines of reinsurance, but is present in overall reinsurance markets; and (3) moral hazard is present in the product liability reinsurance market, but not in the other two lines of reinsurance.
Download or read book Handbook of Insurance written by Georges Dionne and published by Springer Science & Business Media. This book was released on 2013-12-02 with total page 1133 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Computational Complexity written by Robert A. Meyers and published by Springer. This book was released on 2011-10-19 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Complex systems are systems that comprise many interacting parts with the ability to generate a new quality of collective behavior through self-organization, e.g. the spontaneous formation of temporal, spatial or functional structures. These systems are often characterized by extreme sensitivity to initial conditions as well as emergent behavior that are not readily predictable or even completely deterministic. The recognition that the collective behavior of the whole system cannot be simply inferred from an understanding of the behavior of the individual components has led to the development of numerous sophisticated new computational and modeling tools with applications to a wide range of scientific, engineering, and societal phenomena. Computational Complexity: Theory, Techniques and Applications presents a detailed and integrated view of the theoretical basis, computational methods, and state-of-the-art approaches to investigating and modeling of inherently difficult problems whose solution requires extensive resources approaching the practical limits of present-day computer systems. This comprehensive and authoritative reference examines key components of computational complexity, including cellular automata, graph theory, data mining, granular computing, soft computing, wavelets, and more.
Download or read book Pivotal Deterrence written by Timothy W. Crawford and published by Cornell University Press. This book was released on 2003 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: "Crawford explains the political dynamics of pivotal deterrence and the conditions under which it is likely to succeed, while examining some of its most impressive feats and failures. German Chancellor Otto von Bismarck's agile approach to the 1870s Eastern Crisis, which prevented war between Russia and Austria-Hungary, is contrasted with Britain's ambiguous and ill-fated maneuvers to deter Germany and France in July 1914. Shifting to the 1960s Cold War, Crawford explores the successes and setbacks in U.S. efforts to prevent NATO allies Greece and Turkey from fighting over Cyprus and to defuse the Kashmir conflict between India and Pakistan."--BOOK JACKET.
Download or read book Adverse Selection and Moral Hazard Issues in the Market for Corporate Control written by S. Nagarajan and published by . This book was released on 1987 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt:
