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Moral Hazard, Aggregate Risk and Nominal, Linear Financial Contracts

Abstract : We study competitive equilibria with moral hazard in economies with aggregate risk and where trading occurs with an incomplete set of financial assets. The main conclusion of the paper is that, contrary to the individual risk economies, moral hazard is compatible with trading in competitive linear financial contracts, and gives rise to no manipulation problem. We establish existence of nonmanipulable equilibria provided that there are no relative price effects (e.g. a one-commodity economy), and that ...nancial markets display nonlinearly homogeneous payoffs (e.g., nominal), and are sufficiently incomplete. Finally, we justify the linear contract as the optimal pricing schedule in a specific trading game with an auctioneer.
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https://hal-hec.archives-ouvertes.fr/hal-00599915
Contributor : Antoine Haldemann <>
Submitted on : Saturday, June 11, 2011 - 3:41:28 PM
Last modification on : Tuesday, August 13, 2019 - 1:50:03 PM

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  • HAL Id : hal-00599915, version 1

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Alessandro Citanna, Archishman Chakraborty. Moral Hazard, Aggregate Risk and Nominal, Linear Financial Contracts. 1999. ⟨hal-00599915⟩

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