Contracts adopted with later renegotiation in mind may take simple forms. In a principal-agent model, if renegotiation may occur after the agent chooses efforet, the principal protects against unfavorable renegotiation by "selling the project" to the agent via a sales contract. If only singleton...

Conventional theory holds that moral hazard - the additional health care purchased as a result of becoming insured - is an opportunistic price response and is welfare-decreasing because the value of the additional health care purchased is less than its costs. The theory of the demand for health...

This paper presents theory that an important source of value is missing from conventional theory of the demand for health insurance, namely, the effect of the transfer of income (from those who purchase insurance and remain healthy to those who purchase insurance and become ill) on purchases of...

One of the reasons for the recent crisis is that financial institutions took "too much risk" (Brunnermeier, 2009; Taylor et al., 2010). Why were these institutions taking so much risk is an open question. A recent strand in the literature points towards the "cognitive dissonance" of investors who,...

This paper analyzes the optimal contract for a consumer to procure a credence good from an expert when (i) the expert might misrepresent his private information about the consumer's need, (ii) the expert might not choose the requested service since his choice of treatment is non-observable, and...

This paper shows in two ways that the degree to which free-riding diminishes the performance of deterministic partnerships may be less than has been generally thought. First, a necessary and sufficient condition is provided for a partnership to sustain full efficiency. It implies that many...

A game-theoretic setting is used to illuminate the conflict between vaccination proponents and vaccination opponents. A central result is that vaccination proponents could in principle persuade vaccination opponents to vaccinate by means of subsidization. Such a subsidy could increase benefits...

Using a new experimental design, we compare how subjects form beliefs in an investor-client setup under varying degrees of liability. Our results reflect the importance of social preferences when making investment decisions for others. We show that when investors have no liability, those with...

Subjective evaluations are widely used, but call for different contracts from classical moral-hazard settings. Previous literature shows that contracts require payments to third parties. I show that the (implicit) assumption of deterministic contracts makes payments to third parties necessary....

Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under aggregate demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard and private cost information threatens this benefit. Crowdfunding's...