social interaction co worker altruism and incentives social interaction with colleagues is an important job attribute for many workers to attract and retain workers managers therefore need to think about how to create and preserve high quality co worker relationships this paper develops a principal multi agent model where agents do not only engage in productive activities but also in social interaction with their colleagues which in turn creates co worker altruism we study how financial incentives for productive activities can improve or damage the work climate we show that both team incentives and relative incentives can help to create a good work climate

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

monitoring versus incentives abstract this paper analyzes the trade off between monitoring and incentives in a principal agent relationship with moral hazard we derive general results on the optimal monitoring incentives mix for the case where both parties are risk neutral and the agent faces a limited liability constraint we show that the principal uses less monitoring and stronger incentives if the agent s liability limit is relaxed or if monitoring costs increase to induce more effort on the part of the agent the principal resorts to more monitoring or to stronger incentives or both in particular there are cases where the cheapest way to induce more effort is to use lower powered money incentives but with much more precise monitoring

the welfare implications of moral hazard and adverse selection in competitive insurance markets i model a competitive insurance market with both moral hazard and adverse selection and analyze the effect on welfare when both problems are present simultaneously an examination of the interaction between these two problems leads to two hypotheses first the nature of the equilibrium contracts is such that each problem partially offsets the welfare loss associated with the other and second the degree to which this occurs increases as agents become more heterogeneous simulation results overwhelmingly support both hypotheses

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

the quantitative analytics of the basic neomonetarist model this paper constructs a dynamic macroeconomic model with less than perfect price flexibility which has a classical side consistent with real business cycle theory augmented by investment adjustment costs increasing returns to scale and a new flexible formalization of imperfect competition something akin to the classical dichotomy is justified by a mode of approximation appropriate for a model in which one state variable adjusts quickly while another state variable adjusts slowly even with investment adjustment costs monetary expansions are found to raise the real interest rate the determinants of real rigidity and the macroeconomic rate of price adjustment are investigated copyright 1995 by ohio state university press

how robust are popular models of nominal frictions this paper analyzes three popular models of nominal price and wage frictions to determine which best ts post war u s data we construct a dynamic stochastic general equilibrium dsge model and use maximum likelihood to estimate each model s parameters because previous research nds that the conduct of monetary policy and the behavior of in ation changed in the early 1980s we examine two distinct sample periods using a bayesian pseudo odds measure as a means for comparison a sticky price and wage model with dynamic indexation best ts the data in the early sample period whereas either a sticky price and wage model with static indexation or a sticky information model best ts the data in the late sample period our results suggest that price and wage setting behavior may be sensitive to changes in the monetary policy regime if true the evaluation of alternative monetary policy rules may be even more complicated than previously believed

adverse selection and moral hazard in insurance can dynamic data help to distinguish a standard problem of applied contracts theory is to empirically distinguish between adverse selection and moral hazard we show that dynamic insurance data allow to distinguish moral hazard from dynamic selection on unobservables in the presence of moral hazard experience rating implies negative occurrence dependence individual claim intensities decrease with the number of past claims we discuss econometric tests for the various types of data that are typically available finally we argue that dynamic data also allow to test for adverse selection even if it is based on asymmetric learning jel d82 g22 c41 c14

adverse selection repeated insurance contracts and announcement strategy in this note we present a strategy which relies on multi period contracts and on a self selection mechanism which induces the insured to announce his true risk in the first period thus eliminating inefficiency due to adverse selection

market equilibrium with private knowledge the effect of asymmetric information between buyers and sellers on product quality was first explored by akerlof 1970 in his pathbreaking paper on the market for lemons he showed that if all purchasers have imperfect information on quality then a market for the product may not exist or if it does function it may not be efficient these results have led to a number of papers concerning insurance and labor markets under different assumptions regarding how agents discriminate between products of varying quality see pauly 1974 rothschild and stiglitz 1976 wilson 1977 miyasaki 1977 and spence 1978

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

multi period insurance contracts this paper examines the form of insurance contracts in the presence of asymmetric information about consumers accident probabilities our goal is to understand the adjustment in contract terms as a function of accident histories in a finite horizon model we also compare these adjustments between alternative market structures our principal findings indicate that history dependent insurance contracts serve a useful sorting role individuals who declare themselves low risks to insurance companies face adverse contracturai terms if they subsequently have many accidents these adjustments are strongest in the case of a single insurance seller but are present in the competitive model as well

another look at sticky prices and output persistence abstract price rigidity is the key mechanism for propagating business cycles in traditional keynesian theory yet the new keynesian literature has failed to show that sticky prices by themselves can effectively propagate business cycles we show that price rigidity in fact can by itself give rise to a strong propagation mechanism in standard models provided that investment is also subject to a cash in advance constraint reasonable price stickiness can generate highly persistent hump shaped movements in output under either monetary or non monetary shocks hence whether or not price rigidity is responsible for output persistence is not a theoretical question but an empirical one

moral hazard and dynamic insurance data this paper exploits dynamic features of insurance contracts in the empirical analysis of moral hazard we first show that experience rating implies negative occurrence dependence under moral hazard individual claim intensities decrease with the number of past claims we then show that dynamic insurance data allow to distinguish this moral hazard effect from dynamic selection on unobservables we develop nonparametric tests and estimate a flexible parametric model we find no evidence of moral hazard in french car insurance our analysis contributes to a recent literature based on static data that has problems distinguishing between moral hazard and selection and dealing with dynamic features of actual insurance contracts methodologically this paper builds on and extends the literature on state dependence and heterogeneity in event history data jel d82 g22 c41 c14

can group incentives alleviate moral hazard the role of pro social preferences abstract incentivizing unobservable effort in risky environments such as in insurance credit and labor markets is vital as moral hazard may otherwise cause significant welfare losses including the outright failure of markets ensuring incentive compatibility through state contingent contracts between principal and agent however is undesirable for risk averse agents we provide a theoretical intuition on how pro social preferences between agents in a joint liability group contract can ensure incentive compatibility two independent large scale behavioral experiments framed in an insurance context support the hypotheses derived from our theory in particular effort decreases when making agents payoff less state dependent but this effect is mitigated with joint liability in a group scheme where agents are additionally motivated by pro social concerns activating strategic motives slightly increases effort further particularly in non anonymous groups with high network strength the results support existing evidence on joint liability groups and further suggest that even if peer pressure to ensure effort provision is absent such group policies can improve efficiency when agents are pro social

incentives in principal agent relationships this article identifies some of the major issues that have been examined in the literature on incentives the article begins by discussing the frictions that lie at the heart of incentive problems next the principal s optimal response to these frictions is explored taking as given the characteristics of the agents with whom the principal interacts in a nonrepeated setting the design of individualized contracts contests and tournaments is analyzed then the principal s task of selecting the best agent is addressed and repeated agency relationships are considered

financial intermediation delegated monitoring and long term relationships abstract this paper considers the consequences of enduring relationships for bank structure and policy in an information based banking model adding a richer time dimension allows repeated lending between the intermediary and borrower this contract lets a bank produce information and enforce compliance more easily than direct monitoring of the borrower s organization this implies an asymmetric banking structure banks enter long term relationships with borrowers but not with depositors next it shows how enduring relationships solve problems with loan participations and security underwriting by commercial banks

predetermined prices and the persistent effects of money on output this note illustrates a model of predetermined pricing where firms set a fixed schedule of nominal prices at the time of price readjustment based on the work of fischer 1977 this contrasts with the model of fixed pricing the specification underlying most recent dynamic sticky price models it is well known that predetermined pricing cannot generate substantial persistence in the real effects of monetary shocks when prices are set via fixed duration contracts unless the contracts are of long duration however we show that with a probabilistic model of price adjustment a predetermined pricing specification can produce almost as much persistence as the more conventional model of fixed prices without the assumption of long average contract duration

price discrimination by a many product firm determining the optimal selling strategy for a multiproduct firm facing consumers with unknown tastes is a difficult task this paper aims to show how almost optimal nonlinear tariffs can often be found when the number of products becomes large

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

self selection and monitoring in dynamic incentive problems with incomplete contracts a dynamic trading problem is examined in which a monopsonistic employer tries to hire workers whose productivities and reservation wages are private information the employer can only observe an employee s quality indirectly by monitoring a non verifiable measure of on the job performance the employer makes contract offers which employees can accept or reject once a contract has been accepted it is impossible for the employer to exchange messages with individual employees on the unique stationary equilibrium path for the contracting game the employer chooses between two mutually exclusive outcomes in the market outcome the employer offers long term contracts and information is conveyed entirely through self selection and delayed production in the monitoring outcome the employer offers short term contracts and contract renegotiation is conditioned by an employee s past performance a simple characterization theorem is provided which illustrates the often surprising effects of improvements in information in this setting for example an employer who is initially offering short term contracts to exploit performance information may stop monitoring and shift to market screening when the monitoring technology becomes more informative

moral hazard cycles in individual coverage crop insurance this paper examines the moral hazard implications of individual coverage crop insurance contracts individual coverage contracts are informationally superior to standard contracts because the farmer s coverage is proportional to his average historical yield despite this apparent benefit the steady state solution is shown to be characterized by moral hazard cycles where moral hazard is practiced in alternative periods the amplitude of the cycle and thus the variability in planned production is shown to be larger the lower the degree of production uncertainty the fewer the number of years used in the averaging process the higher the coverage threshold and the lower the level of co insurance

moral hazard and secured lending in an infinitely repeated credit market game we analyze repeated moral hazard with discounting in a competitive credit market with risk neutrality even without learning or risk aversion long term bank borrower relationships are welfare enhancing the main result is that the borrower obtains an infinite sequence of unsecured loans at below spot market cost following the first good project realization this contract produces first best action choices prior to this stage the borrower gets secured loans with above market borrowing cost the optimal contract thus displays a selective memory feature taking only one of two forms at any given point in time depending on prior history we consider an infinitely repeated bank borrower relationship with moral hazard and universal risk neutrality and explore the ramifications of credit contract duration when the two well known benefits of long term contracting learning and improved risk sharing are absent our objectives are twofold the first is to analyze an infinitely repeated game with discounting in a credit market context we thus relate the theory of repeated games to financial intermediation theory particularly to issues of moral hazard and collateral related distortions the second objective is to understand noteworthy stylized facts of credit markets such as durability in credit relationships lower borrowing costs for established borrowers and unsecured loans for established borrowers versus secured loans for newer borrowers while these practices may be partly due to learning we show that learning is not essential to rationalize them even if information decays rapidly and banks learn nothing about borrowers through time these aspects of credit contracting arise in a repeated game context our main results are as follows first despite universal risk neutrality and the absence of learning a durable bank relationship benefits the borrower 2 the intuition is that the long term contracting permitted by a durable relationship enables the bank to efficiently tax and subsidize the borrower through time to reduce the use of costly collateral second the average welfare loss due to moral hazard per period is positive even as the time horizon goes to infinity third the optimal infinite horizon contract has the striking property that following the period

automobile insurance ratemaking in the presence of asymmetrical information automobile insurance is an example of a market where multi period contracts are observed this form of contract can be justified by asymmetrical information between the insurer and the insured insurers use risk classification together with bonus malus systems in this paper we show that the actual methodology for the integration of these two approaches can lead to inconsistencies we develop a statistical model that adequately integrates risk classification and experience rating for this purpose we present poisson and negative binomial models with regression component in order to use all available information in the estimation of accident distribution a bonus malus system which integrates a priori and a posteriori information on an individual basis is proposed and insurance premium tables are derived as a function of time past accidents and the significant variables in the regression statistical results were obtained from a sample of 19 013 drivers

asymmetric treatment of identical agents in teams abstract we investigate when identical agents will be treated asymmetrically in a simple team setting asymmetric treatment is optimal when the agents individual contributions to team performance are strategic complements symmetric treatment of identical agents is optimal when the agents contributions are strategic substitutes or when they are independent

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

repeated insurance contracts and learning this article considers a repeated insurance model with incomplete information in which the insurer and the consumer both learn over time about the unknown risk category of the consumer care choices by young consumers affect the informational value of the accident history under an optimal scheme of long term insurance contracts young consumers will always be subsidized by old consumers and consumers who are reassessed as low risk types are always subsidizers i e reverse experience ratings we compare this optimal scheme with the set of contracts that would emerge in a competitive market if only short term contracting were possible these sequentially competitive contracts can lead to over investment in care by both young and old consumers relative to the optimum in contrast to the underinvestment problem associated with moral hazard in insurance

risk overhang and market behavior we show that exposure from past business transactions risk overhang can reduce activity in related business lines sometimes to the point where no new trade occurs we focus primarily on the role of overhang in nonlife insurance market disruptions our model predicts that the relative impact duration and character of supply disruptions are related to the extent of overhang these predictions are consistent with differences between the mid 1980s liability insurance crisis and the early 1990s catastrophe reinsurance crisis the overhang model predicts attributes of these crises that prior explanations relying on adverse selection do not we also discuss applications of the overhang model to disruptions in lending and securities markets

pricing municipal debt pricing municipal debt is a process substantially different from the valuation of corporate liabilities municipalities are not seized upon default therefore they might own additional assets that could he made available to retire debt even when the value of pledged revenues is insufficient to do so however if the value of the municipality s additional assets is only observable privately moral hazard can deter payments from these alterna tive revenue sources a second consequence of lack of seizure is that the municipality survives and might return to the capital markets to raise additional funds in the future this opens an opportunity to induce extraordinary payments from the value of the ad ditional assets through multiperiod pricing controls e g by following defaults with poor pricing for subsequent securities issues

adverse selection private information and lowballing in insurance markets recent contributions to the adverse selection literature have focused on a multiperiod competitive environment in this setting a clean distinction arises between the predictions of competing models cooper and hayes extend the model of rothschild and stiglitz to multiple periods the result is a self selecting equilibrium characterized by price highballing or systematically overcharging new business kunreuther and pauly suggest that information asymmetries between competing insurance firms render such price quantity policies infeasible their model results in a pooling equilibrium that is characterized by price lowballing or systematically undercharging new business our evidence is consistent with the kunreuther and pauly model and reveals the persistence of adverse selection in the automobile insurance market copyright 1990 by the university of chicago

the value of screening mechanisms under alternative insurance possibilities abstract this paper investigates the welfare implications of symmetrical improvements in information and accompanying screening mechanisms which allow for improved matching of individuals to their respective risk classes unlike previous models used to investigate this phenomenon this paper allows for the possibility that individuals differ not simply according to exogenously specified unequal loss probabilities but rather that individuals possess different self protection technologies moreover various insurance contracting possibilities are also considered it is demonstrated that the structural form of the heterogeneity of technologies and the type of insurance contracts available in the market determine in an interactive way the value of information which improves the matching of individuals to risk class

developing experience based premium rate discounts in crop insurance this article addresses the feasibility of implementing an experience based premium rate discount system in crop insurance while adverse selection and moral hazard in crop insurance have been extensively studied in the past discount systems or bonus malus incentives have not to our knowledge been investigated our empirical analysis indicates that a crop insurance discount system could be implemented based on a measure of favorable past insurance experience the estimated average discounts based on the rating methods developed in this study ranged from 5 to 9 depending on the crop being considered

evidence on the incentive properties of share contracts abstract ever since adam smith share contracts have been condemned for their lack of incentives sharecropping tenants face incentives to undersupply productive inputs since they receive only a fraction of the marginal revenue the empirical literature reports that lands under sharecropping are indeed less productive and employ inputs less intensively than those operated by owners this paper shows that 1 sharecropping and fixed rent tenancy are both associated with low quality lands 2 plots under sharecropping and fixed rent present on average the same unconditional productivity 3 controlling for observed land quality and input use their average productivities are also identical to those of owner operated plots and 4 the input choices satisfy the same profit maximization conditions for all land contracts these results challenge the conventional wisdom connecting sharecropping to incentive distortions they support an alternative view that farmers optimally employ more input resources into

inattentive consumers and international business cycles this paper presents and studies the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently introducing inattentive consumers has important implications through a mechanism resembling the limited participation models exchange rate volatility observed in the data can be addressed for reasonable values of risk aversion the model generates more persistence in output consumption and employment which brings us closer to the data impulse responses to monetary shocks are hump shaped consistent with the empirical evidence forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate the decline in the correlation is quantitatively small for our benchmark model model generates a substantial amount of consumer forecast errors when producers are attentive and productivity shocks are persistent this specification results in a large decline of the correlation of real exchange rate and relative consumption due to consumer inattentiveness when trade elasticity is set to values at the low end of macro estimates or at higher values consistent with sectoral estimates the correlation is in the negative territory with inattentive consumers

pricing production and persistence though built with increasingly precise microfoundations modern optimizing sticky price models have displayed a chronic inability to generate large and persistent real responses to monetary shocks as recently stressed by chari kehoe and mcgrattan 2000 this is an ironic finding since taylor 1980 and other researchers were motivated to study sticky price models in part by the objective of generating large and persistent business fluctuations we trace this lack of persistence to a standard view of the cyclical behavior of real marginal cost built into current sticky price macro models using a fully articulated general equilibrium model we show how an alternative view of real marginal cost can lead to substantial persistence this alternative view is based on three features of the supply side of the economy that we believe are realistic an important role for produced inputs variable capacity utilization and labor supply variability through changes in employment importantly these real flexibilities work together to dramatically reduce the elasticity of marginal cost with respect to output from levels much larger than unity in ckm to values much smaller than unity in our analysis these real flexibilities consequently reduce the extent of price adjustments by firms in time dependent pricing economies and the incentives for paying fixed costs of adjustment in state dependent pricing economies the structural features also lead the sticky price model to display volatility and comovement of factor inputs and factor prices that are more closely in line with conventional wisdom about business cycles and various empirical studies of the dynamic effects of monetary shocks federal reserve bank of philadelphia boston university nber and frb richmond this paper builds on earlier joint work with alexander l wolman on this topic we wish to thank brian boike for providing excellent research assistance and also to thank the referees and the editor for making numerous useful suggestions the views expressed in this article are those of the authors and do not necessarily represent those of the federal reserve bank of philadelphia the federal reserve bank of richmond or the federal reserve system

reconsideration of the p bar model of gradual price adjustment abstract this paper compares the p bar model of price adjustment with the currently dominant calvo specification theoretically the p bar model is more attractive as it depends on adjustment costs for physical quantities rather than nominal prices while incorporating a one period information lag furthermore the resulting adjustment relation is more completely free of money illusion in terms of dynamic relationships and therefore satisfies the natural rate hypothesis of lucas 1972a econometric testing of the natural rate hypothesis in eckstein o ed the econometrics of price determination board of governors of the federal reserve system which is not satisfied by the calvo model in any of its variants along the way it shows that both the p bar and calvo models can be formulated in distinct versions in which current real wages are or are not allocative quantitatively for a given calibration of the demand parameters the implied time series properties of the inflation rate output gap and nominal interest rate are determined for various policy parameters and are compared with quarterly data for the us economy neither model dominates but overall the comparison seems somewhat more favorable to the p bar model and certainly does not provide support for the dominant position held by the calvo model in current monetary policy analysis

categorizing risks in the insurance industry this paper analyzes the welfare implications of imperfectly categorizing risks in the insurance industry under conditions of asymmetric information firms initially unable to distinguish the risk type of individuals are provided with imperfect information concerning risk membership the paper then compares various wilson type equilibria to determine the welfare implications of firms imperfectly categorizing risks it is shown that only in the case where the initial equilibrium is of the nash no subsidy type is there a pareto type improvement in welfare

the demand and liquidity effects of monetary shocks abstract this paper examines the effect of a monetary shock in a stochastic growth model with a cash in advance constraint and a financial intermediary it explores the differences between the results of restrictions on nominal price adjustment the demand effect and restrictions on savings behavior the liquidity effect it is found that the model that produces the appropriate response to a temporary monetary shock includes both demand and liquidity effects

sticky price models and the natural rate hypothesis abstract a major criticism of standard specifications of price adjustment in models for monetary policy analysis is that they violate the natural rate hypothesis by allowing output to differ from potential in steady state in this paper we estimate a dynamic optimizing business cycle model whose price setting behavior satisfies the natural rate hypothesis the price adjustment specifications we consider are the sticky information specification of mankiw and reis sticky information versus sticky prices a proposal to replace the new keynesian phillips curve quarterly journal of economics 117 1295 1328 and the indexed contracts of christiano et al nominal rigidities and the dynamic effects of a shock to monetary policy journal of political economy 113 1 45 our empirical estimates of the real side of the economy are similar whichever price adjustment specification is chosen consequently the alternative model specifications deliver similar estimates of the u s output gap series but the empirical behavior of the gap series differs substantially from standard gap estimates

desert and inequity aversion in teams teams are becoming increasingly important in work settings we develop a framework to study the strategic implications of a meritocratic notion of desert under which team members care about receiving what they feel they deserve team members nd it painful to receive less than their perceived entitlement while receiving more may induce pleasure or pain depending on whether preferences exhibit desert elation or desert guilt our notion of desert generalizes distributional concern models to situations in

evidence on adverse selection equilibrium signaling and cross subsidization in the insurance market the configuration of equilibrium in the market for automobile collision insurance is examined empirically by representing the premium deductible menu and the demand function as a standard hedonic system using contractual data from a representative insurer we estimate a reduced form hedonic premium equation and the inverse of the marginal bid equation for insurance coverage the data reveal an equilibrium with adverse selection and market signaling but lead us to reject the hypothesis that high risks receive contracts subsidized by low risks

moral hazard insurance claims and repeated insurance contracts the paper develops a simple model of repeated automobile insurance contracts providing a framework for analyzing changes in aggregate insurance data in periods of changes that affect driver incentives experience rating of premiums gives drivers an incentive to exert effort to avoid accidents ex ante moral hazard and an incentive to hide accidents ex post moral hazard the empirical analysis using data from the competitive insurance markets in ontario and alberta over a period of major legislative changes in ontario suggests that much of the recent decline in accidents in ontario was due to an increased incentive to hide accidents jel classification d 12 d82 hasard moral reclamations d assurance et contrats d assurance renouveles le texte developpe un modele simple de contrats d assurance automobile renouveles fournissant un cadre d analyse des donnees d assurance agregees dans des periodes de changement qui affectent les incitations des chauffeurs un regime de primes cotees selon l experience donne aux chauffeurs une incitation a faire des efforts pour eviter les accidents hasard moral ex ante et une incitation a cacher qu il y a eu accident hasard moral ex post l analyse empirique utilisant les donnees recueillies dans les marches d assurance con currentiels de l ontario et de l alberta pour une periode au cours de laquelle il y a eu des changements legislatifs majeurs en ontario suggere qu une bonne partie du declin des accidents enregistre en ontario a ete attribuable a une incitation accrue a cacher les accidents

piece rate contracts for other regarding workers when workers are paid with piece rates inequality arises naturally we consider workers who care about income comparisons and are either status seeking or inequality averse we identify circumstances under which inequality attitudes lead workers to exert more effort than they would otherwise and also circumstances under which workers inequality attitudes lead firms to set lower piece rates than they would otherwise the key behavioral assumption for both of these results to hold when workers are identical is behindness aversion the property that changes in inequality matter more to the worker when he is behind than when he is ahead jel d01 j33 m52

dynamic contracts with moral hazard and adverse selection we study a novel dynamic principal agent setting with moral hazard and adverse selection persistent as well as repeated in the model an agent whose skills are his private information faces a finite sequence of tasks one after the other upon arrival of each task the agent learns its level of difficulty and then chooses whether to accept or refuse each task in turn and how much effort to exert although his decision to accept or refuse a task is publicly known the agent s effort level is his private information we characterize optimal contracts and show that the per period utility of the agent approaches his per period utility when his skills are publicly known as the discount factor and the time horizon increase

sluggish inflation and optimizing models of the business cycle abstract many researchers have added sticky prices to quantitative business cycle models i simulate several of these models in order to evaluate their success at reproducing two features of us data the lagged reaction of inflation to monetary growth and the persistence of inflation

pricing models a bayesian dsge approach for the u s economy this paper compares and estimates three pricing mechanisms in the context of a small dsge model of the u s economy we interpret our results as favoring the pricing mechanism presented in wolman 1999 wolman model over the new keynesian model with indexation gali and gertler 1999 smets and wouters 2004a and the sticky information model of mankiw and reis 2002 the key factor that explains the performance of the wolman model is that the data reject the key assumption of the new keynesian model that the firm s probability of price change is constant over time and independent of the contract s vintage our results also show that incorporating indexation in the new keynesian model represents a poor expedient in matching the autocorrelation function of the inflation process over the last 20 years

adverse selection and finite horizon insurance contracts abstract we use a particular contract to analyze three issues regarding adverse selection monopoly and the use of time within a finite horizon the description and existence of an epsilon equilibrium equilibrium the achievement of a nash equilibrium and the optimality of risk revelation among the results obtained we show that at equilibrium low risk individuals buy full insurance most of the time and high risk individuals always buy full insurance we also show that the equilibrium with risk revelation is a nash equilibrium these results are compared with those of the self selection mechanism stiglitz 1977 and of the equilibrium under moral hazard radner 1981

the equivalence of lending equilibria and signalling based insurance under asymmetric information i present a model in which a continuum of individuals have stochastic idiosyncratic income shocks complete insurance is physically feasible but unattainable due to an information asymmetry income shocks are observable only by the individuals receiving them any insurance institution must therefore rely on self reporting of income innovations two ways of achieving incentive compatible self reporting are presented the first is a debt market with an explicit lending restriction the second is an insurance contract that linearly filters a signal transmitted by individuals the two are then demonstrated to be identical equilibrium consumption fluctuates in a random walk which is inefficient given the physical potential for complete insurance but is efficient given the information constraints the results are complementary to those of green 1987 but permit more general stochastic processes of income to be analyzed serial correlation of income reduces the efficiency of the insurance

money prices interest rates and the business cycle the mechanisms governing the relationship of money prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics in this paper we first document key empirical aspects of this relationship we then ask how well three benchmark rational expectations macroeconomic models a real business cycle model a sticky price model and a liquidity effect model account for these central facts while the models have diverse successses and failures none can account for the fact that real and nom inal interest rates are inverted leading indicators of real economic activity that is none of the models captures the post war u s business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future i introduction the positive correlation of monetary aggregates and real economic activity over the course of many business cycles is a key empirical fact about the u s economy indeed the dynamic dimension of this covariation is so strong and stable that a monetary variable has long been included in the commerce department s index of leading economic indica tors while this pattern of cyclical comovement is widely agreed upon its interpretation is not some macroeconomists view money as purely passive with a positive response to varying levels of economic activity producing the positive correlation others view changes in the quantity of money as an important perhaps dominant source of economic fluctua tions frequently the real effects of monetary changes are suggested to arise from frictions in commodity labor or financial markets in economic theories that describe the influence of these frictions the transmission mechanism from monetary changes to real activity is typically viewed as involving interest rates and the price level the primary goal of this paper is to evaluate three models that explain the link between money prices interest rates and the business cycle we do this in three steps first we docu ment the cyclical behavior of these variables in the united states over the postwar period second we construct three quantitative rational expectations models of macroeconomic activity i a real business cycle model with endogenous money ii a model of commodity market frictions with mon etary non neutralities arising from gradual adjustment of goods prices and iii a model of financial market frictions with monetary non neutralities arising from gradual adjust ments of portfolios finally we compare the models predic tion for the business cycle behavior of money prices and interest rates with the data in exploring the predictions of these models we take the stock of money to be one of several exogenous variables in the system all of our models are capable of generating a forecasting role for money relative to real economic activity similar to that found in the u s data in the real business model monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock in the models with sticky prices and liquidity effects short hand names for the models with frictions in the com modity and financial markets monetary changes have an additional direct positive effect on aggregate output the outline of the paper is as follows section ii describes the data and documents its business cycle characteristics section iii outlines the three macroeconomic models and develops the particular quantitative versions of the models used in our analysis our main empirical results are pre sented in section iv and section v summarizes our results and concludes

relative performance or team evaluation optimal contracts for other regarding agents this paper derives optimal incentive contracts for agents with other regarding preferences it offers a behavioral explanation for the empirically observed lack of relative performance evaluation we analyze a principal multi agent model and assume that agents are inequity averse or status seeking we show that team contracts can be optimal even if the agents performance measures are positively correlated such that relative performance evaluation would be optimal with purely self interested agents and even though relative performance evaluation provides additional incentives to provide effort if agents have other regarding preferences furthermore optimal incentive contracts for other regarding agents can be low powered as compared to contracts for purely self interested agents

semi parametric estimation of hurdle regression models with an application to medicaid utilization this paper develops a semi parametric estimation method for hurdle two part count regression models the approach in each stage is based on laguerre series expansion for the unknown density of the unobserved heterogeneity the semi parametric hurdle model nests poisson and negative binomial hurdle models which have been used in recent applied literature the empirical part of the paper evaluates the impact of managed care programmes for medicaid eligibles on utilization of health care services using a key utilization variable the number of doctor and health centre visits health status measures and age seem to be more important in determining health care utilization than other socio economic and enrollment variables the semi parametric approach is particularly useful for the analysis of overdispersed individual level data characterized by a large proportion of non users and highly skewed distribution of counts for users 1997 john wiley sons ltd

an empirical analysis of moral hazard and experience rating for many years economists and actuaries have studied multiperiod insurance contracts independently and differently the aim of this article is to reduce the gap between empirical studies on the determination of insurance premiums and theoretical studies on moral hazard and experience rating the first objective is to verify empirically the proposition that past experience is a good predictor of risk by using data from a random sample consisting of 19 013 car drivers in quebec the second objective is to construct a multivariate multiperiod pricing formula for automobile insurance in order to reduce the ill effects of moral hazard copyright 1989 by mit press

moral hazard land fertility and sharecropping in a rural area of the philippines abstract introducing concerns about land fertility for landlords in a principal agent model of sharecropping with moral hazard we show that the optimal contract under limited commitment reflects a trade off between production and land quality maintenance using data from the philippines a model where the leasing out and contract choices are simultaneous is estimated and avoids the selectivity bias of observed contracts landlords prefer to use more incentive contracts for more fertile plots and less incentive ones when crop choices induce land overuse empirical tests reject the model of pure risk sharing in production and show the interest of taking land quality maintenance into account

currency and credit are equivalent mechanisms i study a pure exchange economy with many agents whose marginal utility of consumption is stochastically heterogeneous and independent of wealth with realized marginal utility of wealth private information i show that currency and credit are equivalent to a contract that is efficient when the privacy of information is viewed as a constraint and that the cash in advance constraint is an expression of an incentive constraint

are risk preferences stable across contexts evidence from insurance data using a unique dataset we test whether households deductible choices in auto and home insurance reflect stable risk preferences our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household coverage specific poisson processes we find that the hypothesis of stable risk preferences is rejected by the data our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices our results are robust to several alternative modeling assumptions jel d11 d83

collusion enforcement with private information and private monitoring abstract this paper shows that a cartel that observes neither costs prices nor sales may still enforce a collusive agreement by tying each firm s continuation profit to the truncated current profits of the other firms the mechanism applies to both price and quantity competition and the main features are broadly consistent with common cartel practice identified by harrington and skrzypacz 24

output and wages with inequality averse agents we analyze a two task work environment with risk neutral but inequality averse individuals for the agent employed in task 2 eort is verifiable while in task 1 it is not accordingly agent 1 receives an incentive contract which due to his wealth constraint leads to a rent that the other agent resents we show that greater inequality aversion unambiguously decreases total output and therefore average labor productivity more specifically inequality aversion reduces eort wage

unmediated communication in repeated games with imperfect monitoring we show that any correlated equilibrium payoff of two player repeated games with imperfect monitoring and without discounting can be reached as the nash equilibrium payoff of the game extended by a universal mechanism of unmediated communication this result holds regardless the particular concept of equlibrium involved upper lower banach or uniform equlibrium the communication mechanism is built up by using commutative one way functions these functions are designed with the help of cryptographic tools

adverse selection and statistical discrimination an analysis of canadian automobile insurance abstract statistical discrimination occurs when a characteristic such as sex is used as an indicator of the risk group of an individual the theory of adverse selection is used to explain the occurrence of statistical discrimination a model of the market for collision insurance which is based on the theory of adverse selection is estimated on canadian data the results suggest that adverse selection occurs in this market simulations of the effect of prohibiting sexual discrimination in the 21 24 age group indicate that the premiums for single females would increase substantially and that a significant proportion would no longer purchase collision insurance

the efficiency effects of categorical discrimination in the insurance industry recent public policy debate has focused concern on the equity dimensions of categorical discrimination based on sex age or race in insurance and similar markets we consider the efficiency effects of such discrimination and establish that costless imperfect categorization always enhances efficiency when categorization entails a nonnegligible resource cost however no unambiguous efficiency ranking of informational regimes is possible when categorization is costless we demonstrate that government having no better information than market participants can effect redistribution without assuming dictatorial control of the market implying that a market equilibrium with costless categorization is potentially pareto superior to one without it when categorization is costly however the market may categorize when pareto improvements are not possible

short term contracting and strategic oil reserves the effect of short term contracting on resource extraction is studied in a two country model of international trade in oil countries planners are assumed to be fully rational with perfect information and perfect foresight contracts are assumed perfectly enforceable and complete except that short term contracts do not allow commitments to actions taken beyond the contract period we show that short term contracting limits countries opportunities for intertemporal consumption smoothing reducing their collective tolerance for temporal variation in consumption this tends to make them extract more slowly than in the efficient plan that results from long term contracting contractual relationships often outlive the contracts that govern them it is therefore common for a long term relationship to be governed by a sequence of short term contracts when these contracts allow complete control of the organization of the relationship within each contract period any outcome that can be achieved in a long term contract covering the entire life of the relationship is also feasible with a sequence of short term contracts short term contracting can nevertheless have significant effects on resource allocation because each contract must be voluntarily negotiated in the environment created by its predecessors an allocation that is acceptable to both parties as a long term contract might not be voluntarily negotiable as a sequence of short term contracts because short term contracting is so prevalent it is worth asking what sorts of relationship can be organized efficiently only by long term contract and what kinds of distortion are caused by short term contracting two kinds of answers to these questions have been given in the literature one important line of investigation considers the use of memory in contracts designed to control parties incentives under asymmetric information baron and besanko 1985 rubinstein and yaari 1983 sanchez and zapater 1985 stiglitz and weiss 1983 tirole 1986 and townsend 1982 among others have shown how parties can use

inflation dynamics a cross country investigation we document that persistent and lagged inflation with respect to output is a world wide phenomenon in that these short run inflation dynamics are highly synchronized across countries in particular the average cross country correlation of inflation is significantly and systematically stronger than that of output while the cross country correlation of money growth is essentially zero we investigate whether standard monetary models driven by monetary shocks are consistent with the empirical facts we find that neither the new keynesian sticky price model nor the sticky information model can fully explain the data an independent contribution of the paper is to provide a simple solution technique for solving general equilibrium models with sticky information

sticky price and sticky information price setting models what is the difference using a partial equilibrium framework mankiw and reis 2002 show that a sticky information model can generate a lagged and gradual inflation response after a monetary policy shock whereas a sticky price model cannot our paper demonstrates that that finding is sensitive to their model s parameterization to determine a plausible parameterization we specify a general equilibrium model with sticky information in that model we find that inflation peaks only one period after a monetary disturbance a sensitivity analysis of our results reveals that the inflation peak is delayed by including real rigidities when the monetary policy instrument is money growth whereas inflation peaks immediately when the policy instrument is the nominal interest rate

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

repeated insurance contracts with differential learning using principal agent and insurance models several authors recently have shown that inefficiencies arising from asymmetric information between economic agents can be eliminated if the relationship between the agents is enduring and the future is not heavily discounted dionne 1983 radner 1985 radner 1986 rubinstein 1979 rubinstein and yaari 1983 in those models the efficient actions of the parties are common knowledge or it is common knowledge that the party with the private information knows the efficient actions the efficient outcomes are implemented by a statistical scheme comparing realized outcomes with what should have arisen if the efficient actions had been taken this paper studies an insurance model in which the full information efficient actions are not known neither the insurer nor the customer knows the customer s risk characteristics however over time the customer learns about his characteristics and may pass this information on to the insurer though the insurer cannot verify the truthfulness of these reports a customer has good days and bad days on good days it is easier for the customer to prevent accidents the customer s type is the probability with which he has a good day efficient risk sharing between such a risk averse customer and a risk neutral insurer would protect the customer against the randomness in his ability and against loss due to an accident however the insurer appears to be disadvantaged since it cannot observe the customer s actions a moral hazard problem and the customer may become better informed about his own type an adverse selection problem one wonders whether the customer might hide behind a cloak of ignorance about this type in order to exploit his informational advantage in fact i show that in the infinitely repeated model the insurer writing a good faith policy for the customer does implement the full information competitive outcome the insurer takes as true the customer s ability reports and updates its beliefs about the agent s type if the customer s record with the insurer is satisfactory then the insurer offers to this customer the best full information zero profit contract for a customer whose type is given by the mean of these updated beliefs otherwise a high premium is charged until a satisfactory record is regained the martingale version of the law of the iterated

pricing weather insurance with a random strike price the ontario ice wine harvest weather insurance within the agricultural sector has been limited by the difficulty in defining the appropriate weather event and in pricing the product we develop a new pricing method for weather insurance under situations where returns depend not only on the occurrence of the weather event but also its timing the method is used to price weather insurance for ice wine because the harvest quantity of grapes for ice wine degrades over time the strike value on the weather event measured as harvestable hours is random we develop a monte carlo method to estimate the premium

repeated insurance contracts and moral hazard abstract an attempt is made to account for the frequently observed phenomenon of insurance companies offering discounts to clients who possess a favorable record of past claims we argue that such discounts provide a mechanism which enables both insurer and insured to counteract the inefficiency which arises from moral hazard

insurability and moral hazard in agricultural insurance markets pareto optimal and constrained pareto optimal all risk insurance contracts are studied conditions required for emergence of competitive insurance markets are isolated and discussed full insurance contracts are shown to be dominated by contracts involving coinsurance and deductibles if insurers are pseudo risk averse the effect of moral hazard on all risk agricultural insurance indemnity schedules is examined results for indemnity schedules under moral hazard and constant absolute risk aversion show that providing farmers with the incentives to take appropriate actions may imply lower deductibles in the presence of moral hazard than in the absence of moral hazard

on repeated moral hazard with discounting in this paper we analyze optimal contracts in an infinitely repeated agency model in which both the principal and agent discount the future we show that there is a stationary representation of the optimal contract when the agent s conditional discounted expected utility is used as a state variable this representation reduces the multi period problem to a static variational problem which can be analyzed using standard variational techniques this reduction is used to obtain several properties of the contract

the multiperiod principal agent problem in repeated principal agent models long term contracts can improve on short term contracts only if they commit either principal or agent to a payoff in some future circumstance lower than could be obtained from a short term contract negotiated if that circumstance occurs we show that efficient contracting under moral hazard alone does not require long term commitment from the principal provided a short term contract can punish the agent sufficiently in a sense made precise it requires no commitment from the agent either then linking payoffs in one period to outcomes in previous periods does not improve the tradeoff between incentives and risk sharing

aggregate fluctuations interest rates and repeated insurance under private information using a linear quadratic framework i show i the formal equivalence of lending and optimal insurance when information about states is private ii that lending equilibria induce the serial correlation patterns of aggregate and individual stochastic processes of consumption to be identical even if the corresponding income processes differ iii the influence of the interest rate and the underlying serial correlation of the aggregate income process on potential insurance available in lending markets iv the breakdown of individual rationality of the repeated private information contract and corresponding equilibria via defection to autarky as an initial exploration of the force needed by an external mechanism that might prevent this defection i analyze the average gain from defection finding that the average gain from defection increases with the serial correlation of idiosyncratic income associating defection with low interest rates

asymmetric information and learning evidence from the automobile insurance market this paper tests the predictions of adverse selection models using data from the automobile insurance market i find that in contrast to what recent research suggests the evidence is consistent w

incentive contracts and total factor productivity we propose a transactions cost theory of total factor productivity tfp in a world with asymmetric information and transactions costs productivity must be induced by incentive schemes labor contracts trade off marginal benefits and costs of effort the latter include in addition to the workers marginal disutility of effort organizational costs and rents as the economy grows contracts change endogenously inducing higher effort and productivity transactions costs are also affected by societal characteristics that determine the power of incentives differences in these characteristics may explain cross economy productivity differences numerical experiments demonstrate the model s consistency with time series and cross country observations