The Welfare Economics of Moral Hazard
52 Pages Posted: 30 Aug 2000 Last revised: 25 Jul 2022
Date Written: April 1990
Abstract
This paper shows that, except in certain limiting cases, competitive equilibrium with moral hazard is constrained inefficient. The first section compares the competitive equilibrium and the constrained social optimum in a fairly general model, and identifies types of market failure. Each of the subsequent sections focuses on a particular market failure.
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