About this document
Contract Design and Auction Analysis by debmatra is a document available to read on EtoBox.
The document discusses moral hazard in insurance contracts under conditions of both full information and hidden action (second best). Under full information, the optimal insurance coverage is full (x=L) and the premium, coverage, and precautions are set to equalize marginal costs and benefits. Under hidden action, full coverage is not possible as it would reduce precautions to zero, so the insurance contract must balance risk sharing and incentives. An example is provided to illustrate the concepts.
- Author
- debmatra
- Language
- EN