On the validity of the first-order approach with moral hazard and hidden assets

Bertola, Giuseppe; Koeniger, Winfried

doi:10.1016/j.econlet.2014.06.030

Cited by 2 publications

(2 citation statements)

References 9 publications

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“…Jewitt [5] provided some conditions which can be used for justifying the first-order approach in the multi-statistic case. For more literature about the first-order approach for solving principal-agent problems see, e.g., [6][7][8][9][10][11][12][13][14] and the references therein.…”

Section: Problem Descriptionmentioning

confidence: 99%

Globally convergent method for designing twice spline contractual function

2019

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To design a quadratic spline contractual function in the case of discretely unknown nodes, a modified constraint shifting homotopy algorithm for solving principal-agent problems is constructed in the paper. Then the existence of globally convergent solution to KKT systems for the principal-agent problem with spline contractual function is proved under a much weaker condition. The proposed algorithm only requires that any initial point is in the shifted feasible set but not necessarily in the original feasible set.

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Section: Problem Descriptionmentioning

confidence: 99%

Globally convergent method for designing twice spline contractual function

2019

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“…The sufficient conditions we derive are for a one‐period economy with two possible realizations of uncertainty. Establishing validity of the first‐order approach in economies with multiple states and hidden assets is harder, as shown in Bertola and Koeniger (). It might be possible to do so with different methods, perhaps adapting to problems with hidden assets, the direct approach of Jewitt () rather than that of Rogerson ().…”

Section: Validity Of the First‐order Approachmentioning

confidence: 99%

Hidden insurance in a moral‐hazard economy

Bertola

Koeniger

2015

The RAND J of Economics

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We consider an economy where individuals privately choose effort and trade competitively priced securities that pay off with effort-determined probability. We show that if insurance against a negative shock is sufficiently incomplete, then standard functional form restrictions ensure that individual objective functions are optimized by an effort and insurance combination that is unique and satisfies first-and second-order conditions. Modeling insurance incompleteness in terms of costly production of private insurance services, we characterize the constrained inefficiency arising in general equilibrium from competitive pricing of nonexclusive financial contracts.

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On the validity of the first-order approach with moral hazard and hidden assets

Abstract: With moral hazard and anonymous asset trade, first-order conditions need not characterize effort and portfolio choices. A common procedure for establishing validity of the first-order approach in economies with one hidden asset is not fruitful when multiple assets are hidden.

Cited by 2 publications

References 9 publications

Globally convergent method for designing twice spline contractual function

Globally convergent method for designing twice spline contractual function

Hidden insurance in a moral‐hazard economy

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