In this paper, we ask under what conditions norms can enhance welfare by mitigating moral hazard in income insurance … social norms and internalized norms. We study how optimal insurance arrangements, the behavior of insured individuals, and …

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 …