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in credit markets and the buildup of risk ex ante. During a systemic crisis, bailouts relax balance sheet constraints and … mitigate the severity of the recession. Ex ante, the anticipation of such bailouts leads to an increase in risk-taking, making …
Persistent link: https://www.econbiz.de/10012460074
We derive testable implications of model in which first best allocations are not achieved because of a moral hazard problem with hidden saving. We show that in this environment agents typically achieve more insurance than that obtained under autarchy via saving, and that consumption allocation...
Persistent link: https://www.econbiz.de/10012465662
This paper shows that the informativeness principle, as originally formulated by Holmstrom (1979), does not hold if the first-order approach is invalid. We introduce a "generalized informativeness principle" that takes into account non-local incentive constraints and holds generically, even...
Persistent link: https://www.econbiz.de/10012457937
There are a large number of cases where corruption has been discovered investigating levels of consumption that appear to be hard to justify. Yet, in the standard moral hazard model withholding of effort by the agent is not observable to the principal. We argue that this assumption has to be...
Persistent link: https://www.econbiz.de/10012465490
insurer risk retention. We then use panel data on U.S. property liability reinsurance to test the model. The empirical results …
Persistent link: https://www.econbiz.de/10012469663
trade off between risk and return. Banks may mitigate the resultant excessive risk by costly monitoring, where greater risk … reduction requires more resources devoted to risk supervision. Hence, the excessive risk associated with moral hazard is … endogenously determined. We show that a drop in banks' cost of funds increases the risk tolerated by banks in a competitive …
Persistent link: https://www.econbiz.de/10012472110
substantially increasing the risk borne by contractors …
Persistent link: https://www.econbiz.de/10012461011
provision of marginal incentives, and applies the theory to explain variation in the form of compensation of over-the-road truck … of hauls in a way that is consistent with the theory. By contrast, we find that vehicle ownership, which defines a driver …
Persistent link: https://www.econbiz.de/10012469856
The paper studies the effects of tax policy on venture capital activity. Entrepreneurs pursue a single high risk …, progressive taxation as well as investment and output subsidies to the entrepreneurial sector …
Persistent link: https://www.econbiz.de/10012470760
This paper develops an interpretation of the Asian meltdown focused on moral hazard as the common source of overinvestment, excessive external borrowing, and current account deficits. To the extent that foreign creditors are willing to lend to domestic agents against future bail-out revenue from...
Persistent link: https://www.econbiz.de/10012472030