The Welfare Economics of Moral Hazard
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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Copy CitationRichard Arnott and Joseph Stiglitz, "The Welfare Economics of Moral Hazard," NBER Working Paper 3316 (1990), https://doi.org/10.3386/w3316.
Published Versions
Risk, Information and Insurance, edited by Henri Louberge, pp. 91-121. Norwell, MA: Kluwer Academic Publishers 1990.
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