Economics, Econometrics and Finance
4 years ago

Trading Options Can Solve Moral Hazard Problem and Boost Market Efficiency

Econometric Society World Congress 2000 Contributed Papers
Equity, Options and Efficiency in the Presence of Moral Hazard
Michael Magill

Paper Summary

The article explores how the structure of companies can lead to issues with managers not putting in enough effort. It suggests that when investors can see the financial decisions of entrepreneurs, it helps keep everyone in check. The study shows that with enough trading of options, the market can work efficiently even with this moral hazard problem.

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