How does international integration affect the welfare state? Does it call for a leaner or an expanded welfare state? International integration may affect the distortions caused by welfare state activities but also the risks motivating social insurance mechanisms. This paper addresses these...

everal empirical findings have challenged the traditional trade-off between risk and incentives. By combining risk aversion and limited liability in a standard principal-agent model the empirical puzzle on the positive relationship between risk and incentives can be explained.

We analyze the optimal choice of risk in a two-stage tournament game between two players that have different concave utility functions. At the first stage, both players simultaneously choose risk. At the second stage, both observe overall risk and simultaneously decide on effort or investment....

We extend the definition of a convex risk measure to a conditional framework where additional information is available. We characterize these risk measures through the associated acceptance sets and prove a representation result in terms of conditional expectations. As an example we consider the...

Systemic weather risk is a major obstacle for the formation of private (non- subsidized) crop insurance. This paper explores the possibility of spatial diversification of insurance by estimating the joint occurrence of unfavorable weather conditions in different locations. For that purpose...

The paper provides a tractable, analytical framework to study regulatory risk under optimal incentive regulation. Regulatory risk is captured by uncertainty about the policy variables in the regulator's objective function: weights attached to profits and costs of public funds. Results are as...

When two or more agents compete for a bonus and the agents' productivity in each of several possible occurrences depends stochastically on (constant) effort, the number of times that are checked to assign the bonus affects the level of un-certainty in the selection process. Uncertainty, in turn,...

We introduce a new method of varying the risk that bidders face in first-price private value auctions. We find that decreasing bidders' risk significantly reduces the degree of overbidding relative to the risk-neutral Bayesian-Nash equilibrium prediction. This implies that risk affects bidding...

As firms implement tournament bonus reward schemes, mainly the idea is to introduce competition amongst their agents in the order to promote their performance. Tournaments in which agents compete for a bonus by investing effort, are frequently applied, e.g., in development races, political...