This paper develops an incomplete contract model of the licensing relationship that is susceptible to the moral hazard problem. The optimal contractual form of licensing derived in the model generates predictions that seem to be consistent with actual practice. For instance, the introduction of inputs that are not contractible and costly explains the prevalence of royalty contracts in the licen...

Crowdfunding provides innovation in enabling entrepreneurs to contract with consumers before investment. Under demand uncertainty, this improves screening for valuable projects. Entrepreneurial moral hazard threatens this benefit. Studying the trade-off between screening and moral hazard, the paper characterizes optimal mechanisms. Popular all-or-nothing reward-crowdfunding schemes reflect thei...

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 insurance presented here suggests that moral hazard is primarily an income transfer effect. In an estim...

Moral hazard is present in deposit insurance systems, as is true of other insurance settings. Greater efforts to contain its effects are needed in many countries if deposit insurance is to be effective. Various methods are available for this purpose, which may be grouped under three headings: (1) good corporate governance and management of individual institutions; (2) market discipline exercise...

We study computational aspects of moral-hazard problems. In particular, we consider deterministic contracts as well as contracts with action and/or compensation lotteries, and formulate each case as a mathematical program with equilibrium constraints. We investigate and compare solution properties of the MPEC approach to that of the linear programming (LP) approach with lotteries. We propose a ...

Up until this point, we have been concerned mainly with the problem of private information on the part of the agent, information that was economically valuable for the principal in undertaking some decision. In this section, we will be worried about hidden action on the part of the agent. Problems here center on setting the right incentive scheme for the agent to choose an action consistent wit...

Principals seek to enter a productive relationship with agents by posting general incentive contracts. A contract is exclusive and must solve both the ex post moral hazard and the ex ante competitive search problem (participation). Menus of contracts do not help hence (single) contract posting is optimal. Principal competition restores some bargaining power with the agents, to whom principals m...

Although whiplash is a common cause of disability, there is usually no demonstrable pathology and this leaves scope for moral hazard in claims for loss of earnings. Using weekly data about temporary disability, prescription drug purchases and the use of health services during 1996-2007, we examine the effects of a Danish 2002 reform that extended the period where whiplash claimants could get co...

Moral hazard in natural disaster insurance markets has the effect that policyholders prepare less for disasters, which increases the risk they face. However, moral hazard may not arise due to high risk aversion of insured individuals and/or the inherent insurance market context. Chapter 4 offers a comprehensive empirical study of the relation between disaster risk reduction and insurance covera...

We use employee-level panel data from a single firm to explore the possibility that individuals may select insurance coverage in part based on their anticipated behavioral ("moral hazard") response to insurance, a phenomenon we label "selection on moral hazard." Using a model of plan choice and medical utilization, we present evidence of heterogeneous moral hazard as well as selection on it, an...