Optimal contracts and competitive markets with costly state verification
By: Robert  M.Townsend
Series: Staff report -- # 45; Staff report (Federal Reserve Bank of Minneapolis. Research Department : Online) -- 45.
Publisher: Federal Reserve Bank of Minneapolis
Published: 1979
Place of publication: Minneapolis, Minn.]
Language: eng
Format: [electronic resource] /
Subjects: Contracts; Mathematical models
Description: "This paper focuses on avoidable moral hazard and offers one explanation for limited insurance markets, for closely held firms, and for seemingly simple as opposed to contingent forms of debt.  Agents have random endowments of a consumption good which are such that there are gains to trading contingent claims.  But any realization of an endowment is known only by its owner unless a verification cost is borne.  Contracts in such a setting are said to be consistent if agents submit to verification and honor claims in accordance with prior agreements.  The Pareto optimal consistent contracts which emerge are shown to have familiar characteristics"--Federal Reserve Bank of Minneapolis web site.
Notes: Title from PDF file as viewed on 10/16/2007.

Includes bibliographical references.

Also available in print.

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Mode of access: World Wide Web.