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Pricing is integral to insurance design, directly influencing firm behavior and moral hazard, though its effects are insufficiently understood. I study a quasi-experiment in which deposit insurance premiums were changed for U.S. banks with unequal timing, generating differentials between banks in both levels and risk-based "steepness" of premiums. I find evidence that differentials in premiums resulted in distortions, including regulatory arbitrage, but also provided strong incentives to curb moral hazard. I find that firms that faced stronger pricing incentives to become (or remain) safer were more likely to subsequently do so than similar firms that faced weaker pricing incentives. [ABSTRACT FROM AUTHOR]

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Inefficient practices in the logistics industry cause huge losses in social resources. Addressing the quality control issues is challenging in multi-stage transport. Due to the structural characteristics of the serial logistics service chains, the real delivery quality of each Third Party Logistics (3PL) is invisible to the Lead Logistics Provider (LLP), and the defects of a single 3PL's delivery quality will be covered up. Thus, unobservable delivery quality triggers the moral hazard action of 3PL, and strengthens the inequities in a serial logistics service chain. Blockchain technology can be an effective tool to resolve the moral hazard problem. We employ game theory-based models to investigate the blockchain adoption issue in serial logistics service chains. Adopting blockchain technology might bring Pareto improvement in delivery quality and total profit of the service chain. However, 3PL's profit may be hurt because of blockchain adoption. Therefore, successful blockchain implementation depends on whether the initiator of a blockchain programme can properly incentivise 3PLs. [ABSTRACT FROM AUTHOR]

This paper explores how an agent's incentives map into her performance. We let the agent choose how much effort to invest and which project to implement. We show that the relationship between an agent's incentives to perform and her expected performance could be negative and we characterize alternative conditions for a negative relationship. This also holds true when the principal instead of the agent makes the project choice. We thereby show that the you-get-what-you-pay-for principle is not robust and offer a non-behavioral explanation for the failure of incentives. The results have implications for regulation and ownership structures. [ABSTRACT FROM AUTHOR]

We propose a multiperiod insurance model under a bonus–malus system with two rate classes and consider an insured who has purchased full insurance for her losses. To explore the potential advantage of underreporting her insurable losses, the insured follows a barrier strategy and only reports lossses above the barrier to the insurer. We obtain a unique equilibrium declaration strategy in closed form for a risk‐neutral insured who maximizes her expected wealth, and in semiclosed form for a risk‐averse insured who maximizes her expected exponential utility of wealth, both over an exogenous random horizon. We find that the equilibrium barriers for the two classes are equal and strictly greater than zero, offering a theoretical explanation for the underreporting of insurable losses, a form of ex post moral hazard. Finally, we consider the case of three rate classes and show, through numerical examples, that the equilibrium barriers are not equal. [ABSTRACT FROM AUTHOR]

The European Union's (EU) external governance enjoys significant attention in the literature. Yet its outcomes are usually assessed with reference to strategic documents or scholars' self‐designed criteria. This article contributes to the ongoing debate with a discourse analysis focusing on the perceptions of anti‐corruption reform outcomes in Ukraine by actors on different levels in the EU. Simultaneously, structural factors are incorporated into the analysis. It demonstrates that although constant progress is officially proclaimed by the EU, even technical advisers disagree on how success in this crucial domain is understood and how to measure it. High‐level representatives face a balancing act between conditionality demands, sovereignty limitations and geopolitical considerations. This explains the official signalling by the EU and the development of its rule‐of‐law reform conditionality. The outcome is a potential state of moral hazard and raise the question whether EU external governance has not become a victim of its 'own success'. [ABSTRACT FROM AUTHOR]

AbstractBen Bernanke first referred to Walter Bagehot’s Lombard Street when he was in the chair of the Board of Governors, and when the Federal Reserve responded to the global financial crisis that began in August 2007. While the literature has dealt with the practice of the Federal Reserve and its compliance or otherwise with Bagehot’s rules, it has not detailed Bernanke’s theory of lending in last resort and the underlying interpretation of Bagehot’s rules. Thus, our approach is not empirical but theoretical. We first recall Bagehot’s arguments especially regarding the respective levels of interest rates. Then we show how Bernanke met Bagehot and how he revisited Bagehot’s rules. We find that Bernanke’s approach can be sustained under theoretical conditions—notably working on the assumption that the fundamental value of financial assets can be identified. We conclude by emphasising that the debate can be either restricted to the question of moral hazard, or broadened to the question of the financial cycle. [ABSTRACT FROM AUTHOR]

The NEET rate in Indonesia is the highest among other ASEAN countries and has increased in 2022, coinciding with the first year JKP benefits can be claimed. The purpose of this study is to see and analyze the effect of JKP on the percentage of NEET in Indonesia. Using August 2022 sakernas data and 2021 podes data in the form of cross-section data, this study was conducted using the Ordinary Least Square method. The analysis used in this research is descriptive analysis and inferential analysis in the form of regression analysis. The results of the analysis show that a 1% increase in the number of youth JKP recipients in the district/city reduces the percentage of NEET youth by 0.62% in 2022. Suggestions for the government are to increase JKP participation among youth aged 15-24 years. Review the requirements, claim procedures and obligations of JKP beneficiaries, to mitigate the risk of moral hazard. [ABSTRACT FROM AUTHOR]

Moral hazard involves a context where decision-makers engage in behaviors that prioritize self-interest while allowing the associated risk to be primarily borne by others. Such decision making can lead to catastrophic consequences, as seen in the 2008 global financial crisis after hedge fund managers indiscriminately invested their clients' money in subprime mortgages. This research examines which decision-makers are most likely to engage in moral hazard decision making and the psychological mechanism driving this behavior. Drawing on the dual model of social influence, we posit that individuals associated with dominance, but not prestige, will engage in greater moral hazard behaviors. We further contend that these behaviors are driven by dominant decision-makers' enhanced focus on end goals (outcomes) rather than the means (process) that they use to pursue such goals. We find support for our hypotheses across 13 studies (NObservations = 26,880; of which eight were preregistered and six studies are reported in the Supplemental Materials), using both correlational and experimental designs. Additionally, we vary the moral hazard context (e.g., a financial setting, a health and safety issue, etc.) and capture both behavioral intentions and actual behaviors, while also ruling out several alternative explanations. These findings demonstrate that dominant decision-makers engage in moral hazard behaviors because of their tendency to prioritize outcomes over processes. [ABSTRACT FROM AUTHOR]

Background: This study aims to examine the impact of different healthcare payment systems, specifically salary and fee-for-service (FFS) models, on service provision, patient welfare, and quality of care. The influence of payment models on healthcare delivery and patient outcomes, as well as how these models affect doctors' decision-making based on patients' insurance coverage, is not well understood. Methods: A medically framed real-effort task experiment was conducted. This study compared two payment systems: salary and FFS models. Key outcomes measured included the level of service provision, patient welfare, and quality of care. The analysis focused on how financial incentives and patient insurance coverage influenced healthcare decisions. Results: This study found overtreatment in FFS models and undertreatment in salary-based models. Healthcare decisions are significantly influenced by financial incentives and patient needs. Specifically, in FFS models, decisions are driven by self-interest, while in salary models, they are guided by patient needs. Within the FFS model, insurance coverage affects doctors' decisions and patients' benefits. Insured patients often receive unnecessary or incorrect procedures, indicating a supply-side moral hazard. Conclusions: Financial incentives and patient insurance coverage significantly influence healthcare decisions, with FFS models promoting self-interested decision-making and salary models focusing more on patient needs. This study contributes to the literature on supply-side moral hazard to health economics studies that use laboratory experiments to model medical decision-making. [ABSTRACT FROM AUTHOR]

We analyze contests in which teams compete to win indivisible homogeneous prizes. Teams are composed of members who may differ in their ability, and who exert effort to increase the success of their team. Each team member can obtain at most one prize as a reward. As effort is costly, teams use the allocation of prizes to give incentives and solve the free-riding problem. We develop a two-stage game. First, teams select a prize-allocation rule. Then, team members exert effort. Members take into account how their effort and the allocation rule influence the chance they receive a prize. We prove the existence and uniqueness of equilibrium. We characterize the optimal prize-assignment rule and individual and aggregate efforts. We then show that the optimal assignment rule is generally not monotonic. [ABSTRACT FROM AUTHOR]

This paper considers a class of growth models with idiosyncratic human capital risk and private information about individual effort choices (moral hazard). Households are infinitely-lived and have preferences that allow for a time-additive expected utility representation with a one-period utility function that is additive over consumption and effort as well as logarithmic over consumption. Human capital investment is risky due to idiosyncratic shocks that follow a Markov process with transition probabilities that depend on effort choices. The production process is represented by an aggregate production function that uses physical capital and human capital as input factors. We show that constrained optimal allocations are simple in the sense that individual effort levels and individual consumption growth rates are history-independent. Further, constrained optimal allocations are the solutions to a recursive social planner problem that is simple in the sense that exogenous shocks are the only state variables. We also show that constrained optimal allocations can be decentralized as competitive equilibrium allocations of a market economy with a simple tax- and transfer scheme. Finally, it is always optimal to subsidize human capital investment in the market economy. [ABSTRACT FROM AUTHOR]

A new form of secured lending using "digital collateral" has recently emerged, most prominently in low- and middle-income countries. Digital collateral relies on lockout technology, which allows the lender to temporarily disable the flow value of the collateral to the borrower without physically repossessing it. We explore this new form of credit in a model and a field experiment using school-fee loans digitally secured with a solar home system. Securing a loan with digital collateral drastically reduced default rates (by 19 percentage points) and increased the lender's rate of return (by 49 percentage points). Using a variant of the Karlan and Zinman (2009) methodology, we decompose the total effect on repayment and find that roughly two-thirds is attributable to moral hazard, and one-third to adverse selection. In addition, access to digitally secured school-fee loans significantly increased school enrollment and school-related expenditures without detrimental effects on households' balance sheets. [ABSTRACT FROM AUTHOR]

A monotone function interval is the set of monotone functions that lie pointwise between two fixed, -monotone functions. We characterize the set of extreme points of monotone function intervals and apply this to a number of economic settings. First, we leverage the main result to characterize the set of distributions of posterior quantiles that can be induced by a signal, with applications to political economy, Bayesian persuasion, and the psychology of judgment. Second, we combine our characterization with properties of convex optimization problems to unify and generalize seminal results in the literature on security design under adverse selection and moral hazard. (JEL C61, C65, D72, D82, D91, G12) [ABSTRACT FROM AUTHOR]

How do political parties share power internally? We study the internal organization of political parties as the solution of a moral hazard problem between a party conference and its factions. Factions' mobilization efforts benefit the party electorally, but can only be imperfectly monitored. In contrast with the logic of Michel's Iron Law, we provide a functionalist rationale for intraparty power sharing: We show that internal power sharing can enhance a party's electoral performance. This effect is stronger in settings that award more resources to election winners: Low interparty power sharing produces high intraparty power sharing. We also show that intraparty power sharing should be more frequent within smaller parties, when monitoring of factional effort is more precise (e.g., preferential voting systems), and when factions' ideological disagreements span multiple dimensions. [ABSTRACT FROM AUTHOR]

A principal provides incentives for independent agents. The principal cannot observe the agents' actions, nor does she know the entire set of actions available to them. It is shown that an anti‐informativeness principle holds: very generally, robustly optimal contracts must link the incentive pay of the agents. In symmetric and binary environments, they must exhibit joint performance evaluation—each agent's pay is increasing in the performance of the other. [ABSTRACT FROM AUTHOR]

We study an infinitely repeated game of team production, where agents must supply costly effort under moral hazard. The principal also has the option to delegate an additional production-relevant decision to a team member. We provide conditions under which delegation changes the scope of peer sanction and thus influences the implicit incentives generated by the agents' repeated interaction. Delegation can then become strictly optimal, despite misaligned preferences and symmetric information regarding the efficient decision. We show that implicit incentives under delegation are strongest in diverse teams and use our results to discuss various aspects of organizational design, including self-organized teamwork. This paper was accepted by Suraj Srinivasan, accounting. Funding: This work was supported by the Deutsche Forschungsgemeinschaft [Project-ID 403041268—TRR 266 Accounting for Transparency]. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2022.02212. [ABSTRACT FROM AUTHOR]

This paper investigates the moral hazard problem in finite horizon with both continuous and lump‐sum payments, involving a time‐inconsistent sophisticated agent and a standard utility maximizer principal: Building upon the so‐called dynamic programming approach in Cvitanić et al. (2018) and the recently available results in Hernández and Possamaï (2023), we present a methodology that covers the previous contracting problem. Our main contribution consists of a characterization of the moral hazard problem faced by the principal. In particular, it shows that under relatively mild technical conditions on the data of the problem, the supremum of the principal's expected utility over a smaller restricted family of contracts is equal to the supremum over all feasible contracts. Nevertheless, this characterization yields, as far as we know, a novel class of control problems that involve the control of a forward Volterra equation via Volterra‐type controls, and infinite‐dimensional stochastic target constraints. Despite the inherent challenges associated with such a problem, we study the solution under three different specifications of utility functions for both the agent and the principal, and draw qualitative implications from the form of the optimal contract. The general case remains the subject of future research. We illustrate some of our results in the context of a project selection contracting problem between an investor and a time‐inconsistent manager. [ABSTRACT FROM AUTHOR]

We ask how buyers can make use of bilateral communication in a procurement setting with moral hazard. We focus on a setting where buyers and potential sellers can exchange cheap‐talk messages before trading and where the seller is determined via a buyer‐determined procurement auction. In this type of auction, buyers can freely choose among bidders based on bidders' observable characteristics and the prices they ask for. In a controlled laboratory experiment, we found that buyers use free‐form text messages to make requests and to reduce social distance. The relationship between the offers sellers make and the messages they send is mediated by buyers' requests. But, in general, buyers may increase their profits by choosing sellers who promise high quality or large profits. Furthermore, despite the cheap‐talk nature of requests, buyers in our experiment increase their profits by specifically demanding high quality or large profits. [ABSTRACT FROM AUTHOR]

Why does the International Monetary Fund (IMF) exit its lending relationships before member states have resolved their financial crises? It is particularly surprising given that the IMF often resumes its lending shortly after its withdrawal. We argue that IMF withdrawals are conditioned by global contagion risk. The tension between the IMF's mandate of global financial stability and its limited financial resources compels the IMF's early exit from its lending relationships. During periods of high global contagion, the IMF prioritizes its mandate by continuing its lending despite noncompliance. However, when the IMF perceives minimal contagion risk, it focuses on moral hazard, and willingly cuts its lending ties to preserve its reputation and resources for future crises. Employing a comparative analysis of IMF decision‐making in two of its largest borrowers, Argentina and Greece, we find supportive evidence for our claims. [ABSTRACT FROM AUTHOR]

Purpose: Valuers should independently assess market value. The purpose of this article is to analyze whether the valuation behavior remains independent when commissioned by publicly listed companies in Taiwan. Design/methodology/approach: This study used both quantitative and qualitative methods. Quantitative data analysis was used to examine the estimated premium ratio and estimated divergent ratio with the independent sample t test and Wilcoxon-Mann-Whitney test. To complement and validate the quantitative analysis, open-ended questionnaires were conducted, providing additional insights into the research findings. Findings: The results showed that there is a significant difference in estimated valuations commissioned by representatives of buyers and sellers, and the estimated premium ratios commissioned by representatives of buyers were higher than those of sellers. Furthermore, the open-ended questionnaires results indicate that these findings may be influenced by clients for less experienced appraisers. However, for senior appraisers, this is seen as an action to gain a better understanding of the valuation purpose and always within a reasonable price range. In addition, client influence is not a static factor; it may transform into the valuer's behavior as the appraiser's experience grows and deepens. Practical implications: It is difficult to obtain valuation reports commissioned by representatives of both buyers and sellers for the same property transactions. In this study, data were obtained from the Market Observation Post-System (MOPS) in Taiwan. As valuation reports could not be obtained, estimated valuations and transaction prices are used to calculate estimated premium ratio and estimated divergent ratios. Originality/value: Previous investigations of the client effect have been conducted using qualitative methods including questionnaire surveys, in-depth interviews and experimental design. However, these studies are subject to moral hazard. This study may be the first study that has access to data on valuations for both buyers and sellers in such a formal setting. [ABSTRACT FROM AUTHOR]

This study examines the effects of corporate governance (CG) on investment inefficiency for 506 Indian listed firms. Using new stipulations of CG and globally recognized governance practices, an overall corporate governance index (CGI) and five sub‐indices such as board index (BINDEX), audit index (AINDEX), ownership index (OINDEX), nomination and remuneration index (NRINDEX), and disclosure index (DINDEX) were constructed. Employing newly developed governance indices along with firm‐specific control variables, several pooled regression models were estimated. Robustness checks were conducted using two‐step system GMM and an alternate measure of managerial investment efficiency. The pooled estimated coefficient of CGI and sub‐indices (except OINDEX) on investment inefficiency, overinvestment and underinvest is found to be negative and significant suggesting that effective/robust governance at firm level reduces investment inefficiencies (improves investment efficiency) through effective supervision and monitoring thereby reducing the opportunistic behavior of managers. [ABSTRACT FROM AUTHOR]

I study productive activity, measurement, and compensation in a principal agent model that relaxes common restrictions on the action set of the agent, the distribution of performance measures, and the shape of the wage schedule. The solution to this relaxed problem unifies insights from extant theory and shares features with well-known empirical phenomena. In particular, the optimal outcome distribution has a kink, optimal measurement is conservative, and optimal wages ensure congruent incentives and resemble accounting-based bonus plans featuring a floor, hurdle bonus, incentive zone, and ceiling, with thresholds that may reference other performance measures. Beyond these specific insights, the paper provides a flexible framework for studying how incentives are shaped through measurement and contracts. [ABSTRACT FROM AUTHOR]

We examine whether adverse selection has unraveled private markets for equity and state-contingent debt contracts for financing higher education. Using survey data on beliefs, we show a typical college-goer would have to repay $1.64 in present value for every $1 of financing to overcome adverse selection in an equity market. We find that risk-averse college-goers are not willing to accept these terms, so markets unravel. We discuss why moral hazard, biased beliefs, and outside credit options are less likely to explain the absence of these markets. We quantify the welfare gains for subsidizing equity-like contracts that mitigate college-going risks. (JEL D82, D83, G51, I22, I23, I26, J24) [ABSTRACT FROM AUTHOR]

Applications of the blockchain technology in supply chains have attracted extensive attention in both academia and industries. However, little research has investigated the effects of the blockchain technology on firms' operational strategies. In this paper, we investigate the impacts of the traceability enabled by the blockchain technology on a producer's decision whether to outsource delivery to a third-party logistics firm. We find that without the blockchain technology, the logistics firm has a moral hazard—an incentive to set the delivery quality at the lowest level even though improving the delivery quality is for free. The traceability enabled by the blockchain technology can resolve the logistics firm's moral hazard and encourage the producer to improve the production quality. Furthermore, when the delivery is cost-efficient for the producer, the traceability enabled by the blockchain technology motivates the producer to outsource the delivery to the logistics firm; otherwise, the producer's outsourcing decision is not affected. When quality cost is low, the blockchain technology makes the logistics firm improve its delivery quality significantly and encourages the producer to improve the production quality. When the quality cost is moderate, only under certain conditions, the blockchain technology has effects on both parties' decisions. [ABSTRACT FROM AUTHOR]

Royalty rates are an essential contractual provision to reduce the risk of opportunism in franchising partnerships, many of which are international. However, extant research provides limited insights into the factors that determine the level of royalty rates in international franchise agreements. To address this gap, the authors conceptualize and empirically test a model that treats country characteristics (economic potential, legal rights protection, and cultural distance) and contract characteristics (territorial exclusivity and contract duration) as drivers of royalty rates, accounting for product-market profile and service type as potential contextual factors. Using a unique data set comprising 125 international franchising contracts between franchisors and franchisees from 19 countries, the authors find that economic potential (but not territorial exclusivity) is associated with higher royalty rates, whereas legal rights protection, cultural distance, and contract duration are associated with lower royalty rates. Although these relationships are robust across business-to-consumer and business-to-business markets, the impact on royalty rates of economic potential is more pronounced, and that of legal rights protection is less pronounced, for services targeting people (e.g., hospitality) than for services targeting their possessions (e.g., financial services). This work extends the literature exploring the contracting stage of international franchising and provides insights that inform franchisors' and franchisees' decisions related to the design of such contracts. [ABSTRACT FROM AUTHOR]

We develop an equilibrium model with moral hazard, which arises because some productivity shocks are privately observed by firm managers only. We characterize the optimal contract and its implications for firm size, growth, and managerial pay-performance sensitivity and exploit them to quantify the severity of the moral hazard problem. Our estimation suggests that unobservable shocks are relatively modest and account for about 10 |$\%$| of the total variation of firm output. Nonetheless, moral-hazard-induced incentive pay is quantitatively significant and accounts for 50 |$\%$| of managerial compensation. Eliminating moral hazard would result in about a 1 |$\%$| increase in aggregate output. [ABSTRACT FROM AUTHOR]

Corporate dividend policy is a puzzle, especially when considering the effects of economic and behavioural factors. We develop a theoretical analysis of corporate dividend policy in order to analyse the effects of the complex mix of managerial moral hazard, overconfidence, and myopia on managerial incentives to increase or decrease dividends. Furthermore, we consider the effect of investor irrationality that drives corporate dividend catering behaviour. We investigate how this complex mix of economic and behavioural factors is likely to affect dividend policy. Our analysis provides a deep theoretical underpinning to understanding these effects and provides a basis for future empirical research. [ABSTRACT FROM AUTHOR]

Corporate social responsibility (CSR) is critical. As a part of CSR, fashion companies have to decide whether to be ethical or not during the product development process. Motivated by real-world practices, we conduct a gametheoretic modeling analysis and derive the firms' optimal decisions (including ethical operations (ETO) adoption, pricing, and product greenness level) in fashion product development. We identify a key moderating factor which governs how an increase of basic market demand significantly affects the optimal product greenness level and how an increase of basic production cost influences the optimal retail price. Furthermore, we find that there is a threshold that plays a critical role in determining whether the optimal retail price and product greenness level are higher or lower with the adoption of ETO. We prove that when the fixed payment from the retailer to the manufacturer under the ETO case is set to be sufficiently small, the retailer prefers to adopt ETO and requests the manufacturer to follow. We propose three practical measures (including the use of technologies) to help encourage the supply chain members to invest in ETO willingly. We finally consider the probable occurrence of moral hazard problems and explore the managerial implications. [ABSTRACT FROM AUTHOR]

Five main risk factors of fintech lending enterprises are empirically analysed by using the duration analysis model. The main findings are: Technology does not cause a significant increase in enterprise risk, the main reason is that although technology brings new types of risk, namely, technical risk, but it eliminates the human errors and moral hazards in a certain extent. There is debate on the role of regulatory policy on corporate risk, 'market failure theory' and 'regulatory failure theory', the empirical results show that the institutionalization of regulatory is more conducive to reducing risk than the frequently issuing 'new regulatory policies'. As for the debate about whether large or small enterprises carry greater risks, the empirical evidence shows that the failure risks of large enterprises are only 79% of the risks of small enterprise. Another important finding is that the risks of listed companies or venture capital-controlled enterprises are far less than that of private enterprises, which suggests that the institution is very important to reduce risk. [ABSTRACT FROM AUTHOR]

Catastrophic wildfire is an increasingly familiar phenomenon on multiple continents. In the United States, concerns about uncontrolled, destructive wildfire have prompted some major insurance carriers to cease writing new policies or to non-renew existing policies. These trends affect not only policyholders, but also, vulnerable communities that already face multiple obstacles to securing property or renters insurance. This study reviews the social and behavioral sciences literatures on wildfire risk in the United States and insurance protection by homeowners. Three categories of research emerge from the review, namely, homeowner as rational actor, wildfire governance and risk management, and wildfire and social equity. There is abundant scholarship on determinants of homeowner decisions to manage wildfire risk by self-protecting or by purchasing insurance, but comparatively little research on the policy implications of shrinking markets for insurance. Policy research on the needs of underinsured and uninsured populations is also relatively undeveloped. Overlaying Lasswell's social process framework on the three dominant research themes, we find not only divergent research questions, models, and methods, but also, important differences in which stakeholders and stakeholder values are considered. There are opportunities for the different literatures to learn from one another, but also, to sharpen their focus on insurance as a scarce and uncertain resource amid climate change and as property development continues to expand in wildfire-prone areas. [ABSTRACT FROM AUTHOR]

Ultra-orthodox Jews have a complex relationship with the internet. Many ultraorthodox indeed object to concepts of progress and modernity, but they do not reject internet use per se so long as they can filter its negative impacts such that the internet does not serve as a tool that might change them. The desire of the ultra-orthodox is to retain their traditional values versus the moral hazards involved in use of the internet while also ensuring their complete seclusion. As a rule, the ultra-orthodox (as well as other religious groups) relate to the internet as a tool with a significant hazardous capacity to destroy Jewish values, constituting a considerable moral danger. Therefore, they initially forbade any use of the internet within their community. But in time, some understood that considering the major technological advances it is not possible to completely disregard the internet, and they started using it for various purposes such as work, purchases, and even Torah lessons. At the same time, they restricted its use through various filtering systems. This article seeks to present the complex attitude of the ultra-orthodox to internet use in general (so no segmentations and statistics are noted) regarding different issues and how they deal with the problems, advantages, and disadvantages of internet use. [ABSTRACT FROM AUTHOR]

This article analyses the optimal punishment structure set by a regulator in banking markets under asymmetric information. Relying on a theoretical model, we analyse whether a decreasing, constant, or increasing sanction scheme deters potentially repeated offences in banking. We find that an increasing punishment structure is efficient in reducing gambling bank behaviour. This holds if and only if the regulator's detection probability is low or the amount gambled by the bank, if it would cheat, is high. With this paper, we provide justification for the current policy practice. [ABSTRACT FROM AUTHOR]

We study a dynamic moral hazard setting where the manager has private evidence that predicts the firm's cash flows. Bad-news disclosure is rewarded by a lower borrowing cost relative to the no-evidence case, whereas no disclosure leads to higher borrowing costs. For a given capital structure, disclosure reduces the firm's default risk by lowering its pay-for-performance sensitivity. However, for a set of low-profitability firms, the anticipation of future disclosure of information by managers lowers both firm value and managerial rents at the financing stage because of a reduction in the firm's initial liquidity. The model can reconcile the empirical evidence on the effects of providing earnings guidance, especially for loss firms. This paper was accepted by Bruno Biais, finance. Funding: S. Fu is supported by the Shanghai Pujiang Program and the Program for Professor of Special Appointment (Eastern Scholar) at Shanghai Institutions of Higher Learning [Grant 0900000182]. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2023.4860. [ABSTRACT FROM AUTHOR]

Major banks around the world lost nearly $210 billion during the period of 2011–2016 due to operational risk events. To mitigate the severe consequences that can arise from such events, the Basel Regulatory Committee has mandated that financial institutions worldwide conduct inspections on operational risk. In light of the importance of operational risk and its current regulation in the industry, this paper proposes a continuous-time principal-agent model that explores the optimal inspection policy of a financial firm (principal) and the effort of its employees (agent) to reduce the occurrence of risk events. First, we characterize the optimal inspection strategy under two commonly used policies in practice, namely random and periodic policies. This characterization reveals the conditions for two different modes of inspection (effort inducement and error correction), as well as the nuanced interactions among the inspection frequency, the penalty charged for errors, and the wage paid to employees. Next, by comparing random and periodic policies, we find that the random policy outperforms the periodic policy if and only if the inspection cost is high. Furthermore, we propose a hybrid policy that strictly dominates the random policy and weakly dominates the periodic policy, suggesting that a proper reduction of the random element in the inspection policy, in the manner of our proposed hybrid policy, can always improve its performance. Finally, we examine the complete information benchmark (without moral hazard), supplemental mitigation strategies, and numerical studies to provide further insights and show the robustness of our main findings. This paper was accepted by Vishal Gaur, operations management. Supplemental Material: The e-companion is available at https://doi.org/10.1287/mnsc.2021.00322. [ABSTRACT FROM AUTHOR]

This article explores the reasons why mission-oriented innovation policies often fail. It identifies seven key factors, including the complexity of the problems being addressed, self-interest of politicians and government agencies, lack of sufficient information, rent-seeking and regulatory capture, distortion of competition and incentives, moral hazard caused by government support, and ignorance of opportunity costs. The article provides case studies and empirical evidence to support these findings, emphasizing the challenges of solving complex problems and implementing top-down projects. It also acknowledges the influence of interest groups and the limitations of policymakers' knowledge and skills. The article discusses potential drawbacks and limitations of mission-oriented innovation policies, such as corruption and rent-seeking, distortion of competition, and moral hazard. The authors suggest that alternative approaches, based on decentralized processes and experimentation, may be more effective in addressing societal challenges. [Extracted from the article]

Our study investigates a model of general equilibrium banking that incorporates moral hazard and incentive mechanisms for bank risk-taking, with a particular focus on deposit market competition. Our findings reveal that when banks compete perfectly in the deposit market, it leads to maximal welfare and an optimal level of bank failure risk. This outcome remains valid even if the risk of failure for competitive banks is higher than that of banks with monopoly rents, and it is not affected by social costs associated with bank failures. Our model suggests that there is no trade-off between bank competition and financial stability. Our results support the empirical findings of Carlson, Correia, and Luck (J Polit Econ 130(2): 462–520, 2022). [ABSTRACT FROM AUTHOR]

We investigate the impact of the Dodd–Frank Act (DFA) on the credit risk behavior of complex bank holding companies (BHCs). Specifically, we assess the effectiveness of the DFA in reducing the credit riskiness of complex banks. Consistent with the moral hazard hypothesis, we find that complex BHCs affected by the DFA increase their credit risk. We argue that possible explanations are that BHCs decreased their lending portfolio quality, loan monitoring, and strength and independence of the risk management function after the DFA. The results are robust to endogeneity concerns, different sample selection criteria, various model and treatment specifications, and placebo tests. [ABSTRACT FROM AUTHOR]

This study investigates the distinctive modeling of regret utility when compared with common utility. I also introduce the interplay between common utility and regret utility. Using this model, I examine the differences in decision making, which encompasses issues such as risk sharing and principal–agent dilemmas. Regret utility is set so that its risk aversion shows common utility's prudence (i.e., downside risk aversion). This paper reveals, both qualitatively and quantitively and with a concrete model, that regret utility leads to a more balanced and optimal ratio of agent payouts to outputs compared with common utility, meaning when major outputs are kept by principal, there are relatively larger agent payouts, and when major outputs are kept by the agent, there are relatively smaller agent payouts. This means that regret makes a more balanced distribution, and regret utility is more conservative (not biased). In addition, preliminary empirical research was performed in which people were asked risk preference or averseness questions, and their risk averseness was calculated by using the CRRA (Constant Relative Risk Aversion) utility function. The regret condition leads to a more conservative attitude. Furthermore, the regret model can be used in other areas, like in conservative investment portfolio optimization. [ABSTRACT FROM AUTHOR]

This paper introduces a dynamic mechanism design tailored for uncertain environments where incentive schemes are challenged by the inability to observe players' actions, known as moral hazard. In these scenarios, the system operates as a Markov game where outcomes depend on both the state of payouts and players' actions. Moral hazard and adverse selection further complicate decision-making. The proposed mechanism aims to incentivize players to truthfully reveal their states while maximizing their expected payoffs. This is achieved through players' best-reply strategies, ensuring truthful state revelation despite moral hazard. The revelation principle, a core concept in mechanism design, is applied to models with both moral hazard and adverse selection, facilitating optimal reward structure identification. The research holds significant practical implications, addressing the challenge of designing reward structures for multiplayer Markov games with hidden actions. By utilizing dynamic mechanism design, researchers and practitioners can optimize incentive schemes in complex, uncertain environments affected by moral hazard. To demonstrate the approach, the paper includes a numerical example of solving an oligopoly problem. Oligopolies, with a few dominant market players, exhibit complex dynamics where individual actions impact market outcomes significantly. Using the dynamic mechanism design framework, the paper shows how to construct optimal reward structures that align players' incentives with desirable market outcomes, mitigating moral hazard and adverse selection effects. This framework is crucial for optimizing incentive schemes in multiplayer Markov games, providing a robust approach to handling the intricacies of moral hazard and adverse selection. By leveraging this design, the research contributes to the literature by offering a method to construct effective reward structures even in complex and uncertain environments. The numerical example of oligopolies illustrates the practical application and effectiveness of this dynamic mechanism design. [ABSTRACT FROM AUTHOR]

Business activities often involve a common agent managing a variety of projects on behalf of investors with potentially conflicting interests. The extent of the agent's actions is also often unknown to investors, who have to design contracts that provide incentives to the manager despite this lack of crucial knowledge. We consider a game between several principals and a common agent, where principals know only a subset of the actions available to the agent. Principals demand robustness and evaluate contracts on a worst‐case basis. This robust approach allows for a crisp characterization of the equilibrium contracts and payoffs and provides a novel proof of equilibrium existence in common agency by constructing a pseudo‐potential for the game. Robust contracts make explicit how the efficiency of the equilibrium outcome relative to collusion among principals depends on the principals' ability to extract payments from the agent. [ABSTRACT FROM AUTHOR]

In this paper, we design the Pareto-optimal reinsurance contract for both the insurer and the reinsurer by minimizing the convex combination of the risk-adjusted value of the insurer's liability and the reinsurer's liability, where capital at risk is calculated by the value at risk (VaR) or conditional value at risk (CVaR). In order to prevent the moral hazard, we assume that both ceded and retained loss functions are increasing functions. We analyze the optimal solutions for a wide class of reinsurance premium principles. When the reinsurance premium principles satisfy three axioms: law invariance, risk loading and preserving convex order, we find that layer reinsurance is always optimal over the assumed risk measures. Then we impose an additional weak constraint on the premium principle to simplify the form of layer reinsurance which is optimal. Finally, we illustrate the applicability of our results by deriving the parameters of the optimal layer reinsurance explicitly under the expected value principle and Wang's premium principle. [ABSTRACT FROM AUTHOR]

We consider a heterogeneous Susceptible–Infected–Recovered epidemic model, calibrated to the COVID-19 pandemic characteristics. We study the equilibrium of a voluntary social distancing game on a network of individuals subject to epidemic risk. We quantify the absolute and relative utility gaps across age cohorts. We further introduce life insurance in the model, which serves to mitigate the loss in the severe individual outcomes. We find that in most cases, insurance decreases the risk of contagion in the network because more individuals can be incentivized to self-isolate. On the other hand, in the case when the insurer does not have sufficient information on the self-isolation strategy of the individual, insurance can introduce moral hazard. We find that when premiums cannot be sufficiently differentiated, individuals may choose not to socially distance. This illustrates the importance of disclosing self-isolation strategies to the insurer, or inferring these strategies for the various types. Partial monitoring of social distancing strategy can mitigate the two problems of moral hazard and adverse selection. [ABSTRACT FROM AUTHOR]