Risk-Taking and Risk-Sharing Incentives under Moral Hazard

Mohamed Belhaj, Renaud Bourlès, Frédéric Deroïan
2014 American Economic Journal: Microeconomics  
This paper explores the effect of moral hazard on both risk-taking and informal risk-sharing incentives. Two agents invest in their own project, each choosing a level of risk and effort, and share risk through transfers. This can correspond to farmers in developing countries, who share risk and decide individually upon the adoption of a risky technology. The paper mainly shows that the impact of moral hazard on risk crucially depends on the observability of investment risk, whereas the impact
more » ... hereas the impact on transfers is much more utility-dependent.
doi:10.1257/mic.6.1.58 fatcat:f2a6qru235c25iy3nr3efyo35u