The Welfare Economics of Moral Hazard

52 Pages Posted: 30 Aug 2000 Last revised: 26 Jul 2010

See all articles by Richard J. Arnott

Richard J. Arnott

Boston College; National Bureau of Economic Research (NBER)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

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.

Suggested Citation

Arnott, Richard J. and Stiglitz, Joseph E., The Welfare Economics of Moral Hazard (April 1990). NBER Working Paper No. w3316. Available at SSRN: https://ssrn.com/abstract=227986

Richard J. Arnott (Contact Author)

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Joseph E. Stiglitz

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