Repeated moral hazard and one-sided commitment

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Creator Series Date Created
  • 1993-09
Abstract
  • This paper considers the unobserved endowment economy of Green (1987) with a restriction that agents can walk away from insurance contracts at the beginning of any period and contract with another insurer (one-sided commitment). An equilibrium is derived characterized by a unique, market determined insurance contract with the property that agents never want to walk away from it. I show that trade (or insurance) still occurs and that a non-degenerate long-ran distribution of consumption exists.

Subject (JEL) Date Modified
  • 11/01/2019
Corporate Author
  • Federal Reserve Bank of Minneapolis. Research Department.
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