Premium
RISK‐SHARING MATCHING AND MORAL HAZARD
Author(s) -
Chen Pu,
Li Sanxi,
Ye Bing
Publication year - 2018
Publication title -
bulletin of economic research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.227
H-Index - 29
eISSN - 1467-8586
pISSN - 0307-3378
DOI - 10.1111/boer.12139
Subject(s) - unobservable , moral hazard , matching (statistics) , agency (philosophy) , economics , reduction (mathematics) , microeconomics , hazard , principal–agent problem , actuarial science , econometrics , incentive , finance , statistics , mathematics , sociology , social science , corporate governance , chemistry , geometry , organic chemistry
In this study we model the endogenous relationship formation between risk‐averse principals and agents in a CARA‐normal framework. Agents exert unobservable efforts to increase mean outputs and reduce risks. We show that risk‐reduction efforts are more important than mean‐increasing efforts in determining the matching patterns. Compared to cases without moral hazard, the agency problem in risk reduction induces more positive‐assortative matchings.