Insurance and Information: Firms as a Commitment Device

A.L. Bovenberg, C.N. Teulings

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Abstract

We explore the role of firms in insuring risk-averse workers.As a device that allows workers to commit to the delivery of their output, the firm arises endogenously as an alternative to the spot market if workers are suciently risk averse and the firm can base incentive payments on good information.Competition, however, may allow the spot market and explicit contracts to crowd out implicit insurance provided by the firm, even though the latter yields higher welfare.We explain why dierent governance structures coexist in quite homogeneous industries.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages42
Volume2002-36
Publication statusPublished - 2002

Publication series

NameCentER Discussion Paper
Volume2002-36

Keywords

  • information
  • labour
  • insurance
  • moral hazard
  • contracts
  • principal agent theory

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