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Risk-Taking and Risk-Sharing Incentives under Moral Hazard

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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Submitted on : Wednesday, February 22, 2017 - 5:25:13 PM
Last modification on : Wednesday, August 5, 2020 - 3:17:19 AM

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Mohamed Belhaj, Renaud Bourlès, Frédéric Deroïan. Risk-Taking and Risk-Sharing Incentives under Moral Hazard. American Economic Journal: Microeconomics, American Economic Association, 2014, 6 (1), pp.58--90. ⟨10.1257/mic.6.1.58⟩. ⟨hal-01474430⟩

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