Economics, Econometrics and Finance
8 years ago

Insurance markets face new challenges as risk-averse agents reveal hidden information.

Economic Theory
Screening risk-averse agents under moral hazard: single-crossing and the CARA case
Bruno Jullien, Bernard Salanié, François Salanié

Paper Summary

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The article explores how to design contracts when one party has more information about their risk tolerance. It shows that incentives decrease as risk aversion increases and discusses the relationship between contract terms and outside options. The findings can be applied to testing for hidden information in insurance markets.