Competition and Incentives with Non-Exclusive Contracts
Posted: 17 Sep 1997
Date Written: November 1996
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: Suggested Citation