Moral Hazard and Monopolistically Competitive Insurance Markets

@article{Hellwig1983MoralHA,
  title={Moral Hazard and Monopolistically Competitive Insurance Markets},
  author={Martin Hellwig},
  journal={The Geneva Papers on Risk and Insurance - Issues and Practice},
  year={1983},
  volume={8},
  pages={44-71}
}
Under moral hazard, the total amount of insurance purchased by an agent determines the effort he takes to prevent an accident and therefore the probability of an accident. The expected profit on the sale of one unit of insurance will therefore depend on the total amount of insurance purchased by the agent so that insurance is not a homogeneous good. A similar situation occurs in credit markets where the return on a loan depends on the probability of bankruptcy, which in turn depends on the… CONTINUE READING