Kaare Strøm
- Published in print:
- 2003
- Published Online:
- January 2005
- ISBN:
- 9780198297840
- eISBN:
- 9780191602016
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/019829784X.003.0003
- Subject:
- Political Science, Comparative Politics
Identifies three motivations for political delegation (capacity, competence, collective action problems) and discusses agency problems and mechanisms of accountability. An ideal-typical form of ...
More
Identifies three motivations for political delegation (capacity, competence, collective action problems) and discusses agency problems and mechanisms of accountability. An ideal-typical form of parliamentary democracy is introduced to reveal that singularity and indirect delegation are key ingredients of delegation and accountability. Develops a delegation model that reveals more agency loss (policy slippage) in parliamentary democracy than in two versions of presidentialism. Parliamentary democracies use ex ante screening by cohesive political parties to protect against adverse selection. Delegation and accountability make parliamentary democracies more efficient, but frequently less transparent. Identifies the implications of different forms of parliamentarism, such as Westminster parliamentarism, pivotal parliamentarism, and constrained parliamentarism.Less
Identifies three motivations for political delegation (capacity, competence, collective action problems) and discusses agency problems and mechanisms of accountability. An ideal-typical form of parliamentary democracy is introduced to reveal that singularity and indirect delegation are key ingredients of delegation and accountability. Develops a delegation model that reveals more agency loss (policy slippage) in parliamentary democracy than in two versions of presidentialism. Parliamentary democracies use ex ante screening by cohesive political parties to protect against adverse selection. Delegation and accountability make parliamentary democracies more efficient, but frequently less transparent. Identifies the implications of different forms of parliamentarism, such as Westminster parliamentarism, pivotal parliamentarism, and constrained parliamentarism.
George J. Mailath and Larry Samuelson
- Published in print:
- 2006
- Published Online:
- January 2007
- ISBN:
- 9780195300796
- eISBN:
- 9780199783700
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195300796.003.0008
- Subject:
- Economics and Finance, Behavioural Economics
This chapter uses the tools developed in Chapter 7 to bound the set of equilibrium payoffs for a repeated game, based on decomposing payoffs on half spaces. These bounds imply a lack of efficiency ...
More
This chapter uses the tools developed in Chapter 7 to bound the set of equilibrium payoffs for a repeated game, based on decomposing payoffs on half spaces. These bounds imply a lack of efficiency for games with binding moral hazard. Extensive illustrations are provided, primarily with the prisoners’ dilemma.Less
This chapter uses the tools developed in Chapter 7 to bound the set of equilibrium payoffs for a repeated game, based on decomposing payoffs on half spaces. These bounds imply a lack of efficiency for games with binding moral hazard. Extensive illustrations are provided, primarily with the prisoners’ dilemma.
Arthur Lupia
- Published in print:
- 2003
- Published Online:
- January 2005
- ISBN:
- 9780198297840
- eISBN:
- 9780191602016
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/019829784X.003.0002
- Subject:
- Political Science, Comparative Politics
Presents a formal theoretical framework that clarifies when principals can, and cannot, use delegation to accomplish desired ends. It shows the conditions (having to do with preferences and ...
More
Presents a formal theoretical framework that clarifies when principals can, and cannot, use delegation to accomplish desired ends. It shows the conditions (having to do with preferences and information) under which agents will act in their principals’ interests and how political institutions can alleviate the perils of delegation. Finally, it discusses the implications of its theoretical insights on chains of political delegation.Less
Presents a formal theoretical framework that clarifies when principals can, and cannot, use delegation to accomplish desired ends. It shows the conditions (having to do with preferences and information) under which agents will act in their principals’ interests and how political institutions can alleviate the perils of delegation. Finally, it discusses the implications of its theoretical insights on chains of political delegation.
Witham Larry
- Published in print:
- 2010
- Published Online:
- May 2010
- ISBN:
- 9780195394757
- eISBN:
- 9780199777372
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195394757.003.0004
- Subject:
- Religion, Religion and Society
Religion is a form of risk management in human lives and in religious groups. Pascal’s Wager famously illustrates the calculation of loss and benefit in religious belief. But there are other economic ...
More
Religion is a form of risk management in human lives and in religious groups. Pascal’s Wager famously illustrates the calculation of loss and benefit in religious belief. But there are other economic models for how religion deals with uncertainty, and this chapter looks at three. First is insurance against risk, with its byproduct of “moral hazard. Second is the need to verify the reliability of religious “goods,” which economists call “credence goods.” Religions, like businesses, seek to assure consumers of reliability. Finally, consumers search for reliable information, which in religion means explanations about the gods, the afterlife, and ultimate religious consequences, such as hell. Typically, monotheistic faiths are deemed “high risk” religions because of their belief in ultimate consequences. But all religions have this feature to some extent, speaking to the human incentive to avoid risk.Less
Religion is a form of risk management in human lives and in religious groups. Pascal’s Wager famously illustrates the calculation of loss and benefit in religious belief. But there are other economic models for how religion deals with uncertainty, and this chapter looks at three. First is insurance against risk, with its byproduct of “moral hazard. Second is the need to verify the reliability of religious “goods,” which economists call “credence goods.” Religions, like businesses, seek to assure consumers of reliability. Finally, consumers search for reliable information, which in religion means explanations about the gods, the afterlife, and ultimate religious consequences, such as hell. Typically, monotheistic faiths are deemed “high risk” religions because of their belief in ultimate consequences. But all religions have this feature to some extent, speaking to the human incentive to avoid risk.
Pranab Bardhan (ed.)
- Published in print:
- 1991
- Published Online:
- November 2003
- ISBN:
- 9780198287629
- eISBN:
- 9780191595912
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198287623.001.0001
- Subject:
- Economics and Finance, Development, Growth, and Environmental
In this book, the authors theorize about the rationale and consequences of some economic institutions and contractual arrangements that are particularly predominant in poor agrarian economies. The ...
More
In this book, the authors theorize about the rationale and consequences of some economic institutions and contractual arrangements that are particularly predominant in poor agrarian economies. The models illustrate how some of the tools of advanced economic theory can be fruitfully used in understanding the aspects of age‐old agrarian institutions (like sharecropping, labour contracts, interlinked economic arrangements straddling labour, land, credit and product markets, producer and credit cooperatives, risk‐sharing institutions, etc.).Less
In this book, the authors theorize about the rationale and consequences of some economic institutions and contractual arrangements that are particularly predominant in poor agrarian economies. The models illustrate how some of the tools of advanced economic theory can be fruitfully used in understanding the aspects of age‐old agrarian institutions (like sharecropping, labour contracts, interlinked economic arrangements straddling labour, land, credit and product markets, producer and credit cooperatives, risk‐sharing institutions, etc.).
Kaare Strøm, Wolfgang C. Müller, and Torbjörn Bergman
- Published in print:
- 2003
- Published Online:
- January 2005
- ISBN:
- 9780198297840
- eISBN:
- 9780191602016
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/019829784X.003.0001
- Subject:
- Political Science, Comparative Politics
Parliamentary government is the most common way to organize delegation and accountability in contemporary democracies. Parliamentary government is a system of government in which the prime minister ...
More
Parliamentary government is the most common way to organize delegation and accountability in contemporary democracies. Parliamentary government is a system of government in which the prime minister and his or her cabinet are accountable to any majority of the members of parliament and can be voted out of office by the latter. Parliamentary democracy is a chain of delegation and accountability, from the voters to the ultimate policy makers, in which at each link (stage), a principal (in whom authority is originally) delegates to an agent, whom the principal has conditionally authorized to act in his or her name and place. The parliamentary chain of delegation is characterized by indirectness and singularity (i.e. at each link of the parliamentary chain, a single principal delegates to a single agent). At each stage of this chain, delegation problems (such as adverse selection and moral hazard) can occur.Less
Parliamentary government is the most common way to organize delegation and accountability in contemporary democracies. Parliamentary government is a system of government in which the prime minister and his or her cabinet are accountable to any majority of the members of parliament and can be voted out of office by the latter. Parliamentary democracy is a chain of delegation and accountability, from the voters to the ultimate policy makers, in which at each link (stage), a principal (in whom authority is originally) delegates to an agent, whom the principal has conditionally authorized to act in his or her name and place. The parliamentary chain of delegation is characterized by indirectness and singularity (i.e. at each link of the parliamentary chain, a single principal delegates to a single agent). At each stage of this chain, delegation problems (such as adverse selection and moral hazard) can occur.
Robert M. Townsend
- Published in print:
- 2011
- Published Online:
- January 2011
- ISBN:
- 9780199533237
- eISBN:
- 9780191594892
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199533237.003.0010
- Subject:
- Economics and Finance, South and East Asia, Development, Growth, and Environmental
This chapter establishes that moral hazard, limited commitment, transaction costs, and other obstacles to trade are salient features of the Thai financial landscape. Structural choice models and data ...
More
This chapter establishes that moral hazard, limited commitment, transaction costs, and other obstacles to trade are salient features of the Thai financial landscape. Structural choice models and data on occupation choice, default rates, choice of type of loan contract, and source of funds are used in this examination. The chapter compares different models and quantifies the damage from various impediments. There is regional variation and evidence of incomplete markets. Financial regime change and policy variation, in this context, have rich implications for both the distribution of gains and losses and for macro dynamics.Less
This chapter establishes that moral hazard, limited commitment, transaction costs, and other obstacles to trade are salient features of the Thai financial landscape. Structural choice models and data on occupation choice, default rates, choice of type of loan contract, and source of funds are used in this examination. The chapter compares different models and quantifies the damage from various impediments. There is regional variation and evidence of incomplete markets. Financial regime change and policy variation, in this context, have rich implications for both the distribution of gains and losses and for macro dynamics.
Michael Chui and Prasanna Gai
- Published in print:
- 2005
- Published Online:
- July 2005
- ISBN:
- 9780199267750
- eISBN:
- 9780191602504
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199267758.003.0010
- Subject:
- Economics and Finance, Financial Economics
Explores the circumstances under which the imposition of statutory debt restructuring mechanisms and/or debt standstills can trigger a ‘rush for the exits’ by creditors. Given the possibility of such ...
More
Explores the circumstances under which the imposition of statutory debt restructuring mechanisms and/or debt standstills can trigger a ‘rush for the exits’ by creditors. Given the possibility of such creditor pre-emption, it also examines how the IMF and the official sector can galvanize private sector involvement by providing ‘catalytic finance’. Concludes with an empirical assessment of the extent of debtor moral hazard—the main reason cited against the adoption of a statutory approach to crisis management.Less
Explores the circumstances under which the imposition of statutory debt restructuring mechanisms and/or debt standstills can trigger a ‘rush for the exits’ by creditors. Given the possibility of such creditor pre-emption, it also examines how the IMF and the official sector can galvanize private sector involvement by providing ‘catalytic finance’. Concludes with an empirical assessment of the extent of debtor moral hazard—the main reason cited against the adoption of a statutory approach to crisis management.
Nicholas Barr
- Published in print:
- 2001
- Published Online:
- November 2003
- ISBN:
- 9780199246595
- eISBN:
- 9780191595936
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199246599.003.0003
- Subject:
- Economics and Finance, Public and Welfare
Chapter 3 discusses unemployment insurance. Actuarial insurance faces a series of problems including adverse selection and – particularly – moral hazard. It is, therefore, not surprising that private ...
More
Chapter 3 discusses unemployment insurance. Actuarial insurance faces a series of problems including adverse selection and – particularly – moral hazard. It is, therefore, not surprising that private insurance connected with unemployment – for example mortgage protection policies – is offered on only the most restrictive of conditions, and that no private policies offer cover remotely comparable to that of state schemes. The state, in contrast, can offer social insurance.Less
Chapter 3 discusses unemployment insurance. Actuarial insurance faces a series of problems including adverse selection and – particularly – moral hazard. It is, therefore, not surprising that private insurance connected with unemployment – for example mortgage protection policies – is offered on only the most restrictive of conditions, and that no private policies offer cover remotely comparable to that of state schemes. The state, in contrast, can offer social insurance.
Amy Finkelstein
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231163804
- eISBN:
- 9780231538688
- Item type:
- book
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231163804.001.0001
- Subject:
- Business and Management, Business Ethics and Corporate Social Responsibility
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 ...
More
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 this book examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and personal research, including a 2008 Health Insurance Experiment in Oregon, the book presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this.Less
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 this book examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and personal research, including a 2008 Health Insurance Experiment in Oregon, the book presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this.
Clark C. Gibson
- Published in print:
- 2005
- Published Online:
- October 2005
- ISBN:
- 9780199278855
- eISBN:
- 9780191602863
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199278857.003.0002
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter focuses on the problem of collective action as it relates to development at the operational level. It first explores how individuals’ motivation may hamper their incentive to work ...
More
This chapter focuses on the problem of collective action as it relates to development at the operational level. It first explores how individuals’ motivation may hamper their incentive to work together. Next, it looks at how missing or asymmetric information about the actions or characteristics of individuals may also inhibit their cooperation. This exploration of collective-action problems is undertaken using the Institutional Analysis and Development framework.Less
This chapter focuses on the problem of collective action as it relates to development at the operational level. It first explores how individuals’ motivation may hamper their incentive to work together. Next, it looks at how missing or asymmetric information about the actions or characteristics of individuals may also inhibit their cooperation. This exploration of collective-action problems is undertaken using the Institutional Analysis and Development framework.
Jan Abel Olsen
- Published in print:
- 2009
- Published Online:
- May 2010
- ISBN:
- 9780199237814
- eISBN:
- 9780191717215
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199237814.003.0007
- Subject:
- Public Health and Epidemiology, Public Health, Epidemiology
This chapter shows that there is a welfare gain from health insurance because people are risk averse with respect to the financial implications of the prospect of ill health. There are effectively ...
More
This chapter shows that there is a welfare gain from health insurance because people are risk averse with respect to the financial implications of the prospect of ill health. There are effectively two main types of asymmetric information related to health insurance: adverse selection, where the asymmetry occurs before the insurance contract is made; and moral hazard, where the asymmetry occurs after the contract is made. Two different bases are presented for pricing health insurance: individual rating and community rating. The arguments in favour of individual rating are: i) it offers consumers a choice of contracts; ii) people have financial incentives for healthy behaviour; and iii) there is no forced cross-subsidy, i.e. it is actuarially ‘fair’. The arguments against individual rating are: i) it involves adverse selection (market failure); ii) transaction costs are high due to false signalling of risks; and iii) access depends on income (‘unfair’). The simplest policy solution to adverse selection, high transaction costs, and unequal access is compulsory public insurance, to which we now turn. Exercises and suggested readings are included at the end of the chapter.Less
This chapter shows that there is a welfare gain from health insurance because people are risk averse with respect to the financial implications of the prospect of ill health. There are effectively two main types of asymmetric information related to health insurance: adverse selection, where the asymmetry occurs before the insurance contract is made; and moral hazard, where the asymmetry occurs after the contract is made. Two different bases are presented for pricing health insurance: individual rating and community rating. The arguments in favour of individual rating are: i) it offers consumers a choice of contracts; ii) people have financial incentives for healthy behaviour; and iii) there is no forced cross-subsidy, i.e. it is actuarially ‘fair’. The arguments against individual rating are: i) it involves adverse selection (market failure); ii) transaction costs are high due to false signalling of risks; and iii) access depends on income (‘unfair’). The simplest policy solution to adverse selection, high transaction costs, and unequal access is compulsory public insurance, to which we now turn. Exercises and suggested readings are included at the end of the chapter.
Ken Binmore
- Published in print:
- 2007
- Published Online:
- May 2007
- ISBN:
- 9780195300574
- eISBN:
- 9780199783748
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195300574.003.0020
- Subject:
- Economics and Finance, Microeconomics
This chapter introduces mechanism design, which is the subject wherein games are designed so that rational play results in socially desirable outcomes. The judgment of Solomon from the Bible is used ...
More
This chapter introduces mechanism design, which is the subject wherein games are designed so that rational play results in socially desirable outcomes. The judgment of Solomon from the Bible is used as an introductory example. The principles of mechanism design are then described. The use of the revelation principle is illustrated with an extended analysis of the Street Lamp Problem. The Clarke-Groves mechanism is briefly described. Finally, a critical review of implementation theory is offered that emphasizes its differences from mechanism design and its shortcomings.Less
This chapter introduces mechanism design, which is the subject wherein games are designed so that rational play results in socially desirable outcomes. The judgment of Solomon from the Bible is used as an introductory example. The principles of mechanism design are then described. The use of the revelation principle is illustrated with an extended analysis of the Street Lamp Problem. The Clarke-Groves mechanism is briefly described. Finally, a critical review of implementation theory is offered that emphasizes its differences from mechanism design and its shortcomings.
James A. Mirrlees
- Published in print:
- 2006
- Published Online:
- October 2011
- ISBN:
- 9780198295211
- eISBN:
- 9780191685095
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780198295211.003.0020
- Subject:
- Economics and Finance, Public and Welfare, Development, Growth, and Environmental
This chapter discusses the different formal models of moral hazard, which include that of Zeckhauser and Mirrlees. It includes an argument that relies on first-order conditions which can help in ...
More
This chapter discusses the different formal models of moral hazard, which include that of Zeckhauser and Mirrlees. It includes an argument that relies on first-order conditions which can help in fully determining the optimum. Some of the sections in the chapter contain discussions on an analysis of an interesting and special case and another rigorous analysis of unobservable behaviour in a fairly general form.Less
This chapter discusses the different formal models of moral hazard, which include that of Zeckhauser and Mirrlees. It includes an argument that relies on first-order conditions which can help in fully determining the optimum. Some of the sections in the chapter contain discussions on an analysis of an interesting and special case and another rigorous analysis of unobservable behaviour in a fairly general form.
Pranab Bardhan and Christopher Udry
- Published in print:
- 1999
- Published Online:
- November 2003
- ISBN:
- 9780198773719
- eISBN:
- 9780191595929
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198773714.003.0007
- Subject:
- Economics and Finance, Development, Growth, and Environmental
One aspect of financial markets that is of great relevance to economic development is the study of credit mechanism design by lenders facing private information. This chapter first develops a model ...
More
One aspect of financial markets that is of great relevance to economic development is the study of credit mechanism design by lenders facing private information. This chapter first develops a model of moral hazard in a rural credit market, beginning with the benchmark case of perfect competition under complete information. It then compares the loan contract offered by non‐local lenders who cannot monitor payoff‐relevant actions of borrowers with that offered by an informed local monopolistic moneylender and examines what happens in a fragmented market where villagers can choose between either contract. The next section develops, along similar lines, a model of adverse selection. The inefficiencies arising in these contracts, the potential mitigating role of collateral, and the possibility of local moneylenders earning informational rent are lessons that emerge from these models.Less
One aspect of financial markets that is of great relevance to economic development is the study of credit mechanism design by lenders facing private information. This chapter first develops a model of moral hazard in a rural credit market, beginning with the benchmark case of perfect competition under complete information. It then compares the loan contract offered by non‐local lenders who cannot monitor payoff‐relevant actions of borrowers with that offered by an informed local monopolistic moneylender and examines what happens in a fragmented market where villagers can choose between either contract. The next section develops, along similar lines, a model of adverse selection. The inefficiencies arising in these contracts, the potential mitigating role of collateral, and the possibility of local moneylenders earning informational rent are lessons that emerge from these models.
Oisín Tansey
- Published in print:
- 2009
- Published Online:
- May 2009
- ISBN:
- 9780199561032
- eISBN:
- 9780191721496
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199561032.003.0007
- Subject:
- Political Science, Comparative Politics, Democratization
This concluding chapter restates and further examines the findings of the book in detail. The first section explores the impact of democratic regime-building operations across the three cases, paying ...
More
This concluding chapter restates and further examines the findings of the book in detail. The first section explores the impact of democratic regime-building operations across the three cases, paying particular attention to the mechanisms of influence and the influence on the mode of transition. The second section identifies a range of challenges to democratic regime-building, including the inherent limitations of international democracy promotion in these settings and the role of domestic state weakness and political divisions. Subsequent sections then examine a set of further issues, including the implications of the findings for theory and for policy, and the scope of the book's findings.Less
This concluding chapter restates and further examines the findings of the book in detail. The first section explores the impact of democratic regime-building operations across the three cases, paying particular attention to the mechanisms of influence and the influence on the mode of transition. The second section identifies a range of challenges to democratic regime-building, including the inherent limitations of international democracy promotion in these settings and the role of domestic state weakness and political divisions. Subsequent sections then examine a set of further issues, including the implications of the findings for theory and for policy, and the scope of the book's findings.
Amy Finkelstein
- Published in print:
- 2014
- Published Online:
- November 2015
- ISBN:
- 9780231163804
- eISBN:
- 9780231538688
- Item type:
- chapter
- Publisher:
- Columbia University Press
- DOI:
- 10.7312/columbia/9780231163804.003.0002
- Subject:
- Business and Management, Business Ethics and Corporate Social Responsibility
This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare ...
More
This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare Economics of Medical Care.” According to Finkelstein, the literature of moral hazard branches into two—ex ante moral hazard and ex post moral hazard—with the latter being usually considered. The concept of ex ante moral hazard is described as the deliberate exercising of an unhealthy lifestyle while aware that he is covered by a health insurance; while the idea of the ex post moral hazard states that at a given level of health, a person may choose to consume more medical products and services because the prices would be lower. Ex post connotes the price sensitivity of demand for medical care. The chapter considers two notable experiments, namely, RAND Health Insurance Experiment and Oregon Health Insurance Experiment as it turns the focus on just how many people will spend on medical care.Less
This chapter examines economics professor Amy Finkelstein's lecture of the economics of moral hazard in health insurance, with respect to economist Kenneth J. Arrow's “Uncertainty and the Welfare Economics of Medical Care.” According to Finkelstein, the literature of moral hazard branches into two—ex ante moral hazard and ex post moral hazard—with the latter being usually considered. The concept of ex ante moral hazard is described as the deliberate exercising of an unhealthy lifestyle while aware that he is covered by a health insurance; while the idea of the ex post moral hazard states that at a given level of health, a person may choose to consume more medical products and services because the prices would be lower. Ex post connotes the price sensitivity of demand for medical care. The chapter considers two notable experiments, namely, RAND Health Insurance Experiment and Oregon Health Insurance Experiment as it turns the focus on just how many people will spend on medical care.
Avishay Braverman and J. Luis Guasch
- Published in print:
- 1991
- Published Online:
- November 2003
- ISBN:
- 9780198287629
- eISBN:
- 9780191595912
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198287623.003.0017
- Subject:
- Economics and Finance, Development, Growth, and Environmental
In this chapter, the authors present an analysis of the motivation, formation, and design of credit cooperatives and show how their degree of success is likely to depend crucially on the particular ...
More
In this chapter, the authors present an analysis of the motivation, formation, and design of credit cooperatives and show how their degree of success is likely to depend crucially on the particular incentive schemes, extent of control over resources, quality monitoring, and enforcement of punishment rules.Less
In this chapter, the authors present an analysis of the motivation, formation, and design of credit cooperatives and show how their degree of success is likely to depend crucially on the particular incentive schemes, extent of control over resources, quality monitoring, and enforcement of punishment rules.
Pranab Bardhan and Christopher Udry
- Published in print:
- 1999
- Published Online:
- November 2003
- ISBN:
- 9780198773719
- eISBN:
- 9780191595929
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198773714.003.0006
- Subject:
- Economics and Finance, Development, Growth, and Environmental
Commences with some comments on the evolution of property rights in land and on reasons for rural land markets being relatively ‘thin’; the rest of the chapter then analyzes the more active ...
More
Commences with some comments on the evolution of property rights in land and on reasons for rural land markets being relatively ‘thin’; the rest of the chapter then analyzes the more active land‐lease market. First, a principal‐agent model of tenancy under uncertainty and private information is presented. It is shown how sharecropping may be used to deal with the trade‐off between risk‐sharing and incentive that arises in the presence of moral hazard. An extension of the model that allows the tenant to decide on a non‐labour input as well throws light on the ‘equal share’ rule in input costs. In the last section, a principal‐agent model with a limited liability constraint is used to study the inefficiency associated with tenancy when credit markets are imperfect and also to point to the possibility of a ‘tenancy ladder’ emerging for tenants with differing wealth constraints.Less
Commences with some comments on the evolution of property rights in land and on reasons for rural land markets being relatively ‘thin’; the rest of the chapter then analyzes the more active land‐lease market. First, a principal‐agent model of tenancy under uncertainty and private information is presented. It is shown how sharecropping may be used to deal with the trade‐off between risk‐sharing and incentive that arises in the presence of moral hazard. An extension of the model that allows the tenant to decide on a non‐labour input as well throws light on the ‘equal share’ rule in input costs. In the last section, a principal‐agent model with a limited liability constraint is used to study the inefficiency associated with tenancy when credit markets are imperfect and also to point to the possibility of a ‘tenancy ladder’ emerging for tenants with differing wealth constraints.
Ingela Alger and JÖrgen W. Weibull
- Published in print:
- 2008
- Published Online:
- May 2009
- ISBN:
- 9780199239979
- eISBN:
- 9780191716874
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199239979.003.0011
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter analyses the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. It models ...
More
This chapter analyses the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. It models families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter's output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. The chapter compares such informal family insurance with actuarially fair formal insurance. It shows that coerced family altruism reduces individual efforts in equilibrium. However, individuals always benefit ex ante from living in families with coerced altruism, as compared with living in autarky. The chapter shows that a certain degree of coerced family altruism is robust as a social norm in a society of selfish individuals. It explains that if family members are sufficiently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs.Less
This chapter analyses the effects of family ties on the incentives for production of effort, where family ties are defined as a mixture of true and coerced altruism between family members. It models families as pairs of siblings. Each sibling exerts effort in order to obtain output under uncertainty. A social norm dictates that a sibling with a high output must share a specified amount of this output with his sibling, if the latter's output is low. Siblings may be truly altruistic towards each other, but not to a larger degree than dictated by the social norm. The chapter compares such informal family insurance with actuarially fair formal insurance. It shows that coerced family altruism reduces individual efforts in equilibrium. However, individuals always benefit ex ante from living in families with coerced altruism, as compared with living in autarky. The chapter shows that a certain degree of coerced family altruism is robust as a social norm in a society of selfish individuals. It explains that if family members are sufficiently altruistic to each other, then informal family insurance by way of coerced altruism may outperform actuarially fair insurance programs.
