Competition and Incentives with Non-Exclusive Contracts

Posted: 17 Sep 1997

See all articles by Dilip Mookherjee

Dilip Mookherjee

Boston University - Department of Economics

Charles M. Kahn

University of Illinois, Urbana-Champaign; Bank of Canada; Feseral Reserve Bank of Saint Louis

Date Written: November 1996

Abstract

We consider a model in which customers sequentially negotiate nonexclusive credit or insurance contracts from multiple risk-neutral firms in a market with free entry. Each contract is subject to moral hazard arising from a common noncontractible effort decision. Outcomes of a relevant class of stationary perfect equilibria are characterized by a suitable notion of constrained efficiency. These may involve more rationing than in a context of exclusive contracts. Increases in public provision or competition can result in increased prices on the private market, owing to an induced reduction in customer effort.

JEL Classification: D81, D82

Suggested Citation

Mookherjee, Dilip and Kahn, Charles M., Competition and Incentives with Non-Exclusive Contracts (November 1996). Available at SSRN: https://ssrn.com/abstract=10793

Dilip Mookherjee (Contact Author)

Boston University - Department of Economics ( email )

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Charles M. Kahn

University of Illinois, Urbana-Champaign ( email )

Department of Finance
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HOME PAGE: http://kahnfrance.com/cmk/

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