Moral Hazard, Investment, and Firm Dynamics

Moral Hazard, Investment, and Firm Dynamics
Author: Hengjie Ai
Publisher:
Total Pages: 61
Release: 2014
Genre:
ISBN:

We present a dynamic general equilibrium model with heterogeneous firms. Owners of the firms delegate investment decisions to managers, whose consumption and investment are private information. We solve the optimal incentive compatible contracts and characterize the implied firm dynamics. Optimal risk sharing requires managers' equity share decrease with the firm size. This in turn implies that it is harder to prevent private benefit in larger firms, where managers have lower equity stake under the optimal contract. Consequently, smaller firms invest more, pay less dividends, and grow faster. Quantitatively, we show that our model is consistent with the Pareto-like size distribution of firms in the data, as well as the pattern of the relationships between firm size and firms' investment and dividend policies.

Moral Hazard

Moral Hazard
Author: Juan Flores Zendejas
Publisher: Routledge
Total Pages: 167
Release: 2021-12-30
Genre: Business & Economics
ISBN: 1000515028

Moral Hazard is a core concept in economics. In a nutshell, moral hazard reflects the reduced incentive to protect against risk where an entity is (or believes it will be) protected from its consequences, whether through an insurance arrangement or an implicit or explicit guarantee system. It is fundamentally driven by information asymmetry, arises in all sectors of the economy, including banking, medical insurance, financial insurance, and governmental support, undermines the stability of our economic systems and has burdened taxpayers in all developed countries, resulting in significant costs to the community. Despite the seriousness and pervasiveness of moral hazard, policymakers and scholars have failed to address this issue. This book fills this gap. It covers 200 years of moral hazard: from its origins in the 19th century to the bailouts announced in the aftermath of the COVID-19 outbreak. The book is divided into three parts. Part I deals with the ethics and other fundamental issues connected to moral hazard. Part II provides historical and empirical evidence on moral hazard in international finance. It examines in turn the role of the export credit industry, the international lender of last resort, and the IMF. Finally, Part III examines specific sectors such as automobile, banking, and the US industry at large. This is the first book to provide an interdisciplinary analysis of moral hazard and explain why addressing this issue has become crucial today. As such, it will attract interest from scholars across different fields, including economists, political scientists and lawyers.

Moral Hazard in Health Insurance

Moral Hazard in Health Insurance
Author: Amy Finkelstein
Publisher: Columbia University Press
Total Pages: 161
Release: 2014-12-02
Genre: Medical
ISBN: 0231538685

Addressing the challenge of covering heath care expenses—while minimizing economic risks. Moral hazard—the tendency to change behavior when the cost of that behavior will be borne by others—is a particularly tricky question when considering health care. Kenneth J. Arrow’s seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein—recognized as one of the world’s foremost experts on the topic—here examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow. “Reads like a fireside chat among a group of distinguished, articulate health economists.” —Choice

The Theory of Entrepreneurship

The Theory of Entrepreneurship
Author: Chandra S. Mishra
Publisher: Springer
Total Pages: 520
Release: 2014-12-04
Genre: Business & Economics
ISBN: 1137371463

The Theory of Entrepreneurship examines the interiors of the entrepreneurial value creation process, and offers a new unified and comprehensive theory to afford empirical investigations as well as delineate a broader view of the entrepreneurial contextual milieu.

Financial Economics, Risk and Information

Financial Economics, Risk and Information
Author: Marcelo Bianconi
Publisher: World Scientific
Total Pages: 496
Release: 2011-08-23
Genre: Business & Economics
ISBN: 9814355135

Financial Economics, Risk and Information presents the fundamentals of finance in static and dynamic frameworks with focus on risk and information. The objective of this book is to introduce undergraduate and first-year graduate students to the methods and solutions of the main problems in finance theory relating to the economics of uncertainty and information. The main goal of the second edition is to make the materials more accessible to a wider audience of students and finance professionals. The focus is on developing a core body of theory that will provide the student with a solid intellectual foundation for more advanced topics and methods. The new edition has streamlined chapters and topics, with new sections on portfolio choice under alternative information structures. The starting point is the traditional mean-variance approach, followed by portfolio choice from first principles. The topics are extended to alternative market structures, alternative contractual arrangements and agency, dynamic stochastic general equilibrium in discrete and continuous time, attitudes towards risk and towards inter-temporal substitution in discrete and continuous time; and option pricing. In general, the book presents a balanced introduction to the use of stochastic methods in discrete and continuous time in the field of financial economics.

Risk Sharing Within the Firm

Risk Sharing Within the Firm
Author: Marco Pagano
Publisher:
Total Pages: 96
Release: 2020-10-13
Genre:
ISBN: 9781680837407

Labor income risk is key to the welfare of most people and this risk is mainly insured "within the firm" and by public institutions, rather than by financial markets. Risk Sharing within the Firm: A Primer starts by asking why such insurance is provided within the firm, and what determines its boundaries. It identifies four main constraining factors: availability of a public safety net, moral hazard on the employees' side, moral hazard on the firms' side, and workers' wage bargaining power. These factors explain three empirical regularities: family firms provide more employment insurance than nonfamily firms; the former pay lower real wages, and firms provide less employment insurance where public unemployment benefits are more generous. This monograph also explores the connection between risk sharing and firms' capital structure. It concludes by showing that risk sharing within firms has declined steadily in the last three decades, and by discussing the financial, competitive, technological and institutional developments that may have conjured this outcome.