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Futures Market: Contractual Arrangement to Restrain Moral Hazard in Teams

Song, Joon (2007) Futures Market: Contractual Arrangement to Restrain Moral Hazard in Teams. Working Paper. University of Essex, Department of Economics, Economics Discussion Papers, Colchester.

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Abstract

Holmstrom (1982) argues that a principal is required to restrain moral hazard in a team: wasting output in a certain state is required to enforce efficient effort, and the principal is a commitment device for such enforcement. Under competition in commodity and team-formation markets, I extend his model a la Prescott and Townsend (1984) to show that competitive contracts can exploit the futures market to transfer output across states instead of wasting it. Thus, the futures market replaces the role of principals. An important feature of such contracts is exclusiveness: private access to the futures market by team members is now allowed. The duality of linear programming is exploited to characterize a market environment and the contractual agreements for efficiency.

Item Type: Monograph (Working Paper)
Uncontrolled Keywords: general equilibrium, team, contract theory, futures market, duality of linear programming
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Social Sciences > Economics, Department of
Depositing User: Users 161 not found.
Date Deposited: 28 Aug 2014 11:40
Last Modified: 28 Aug 2014 11:40
URI: http://repository.essex.ac.uk/id/eprint/8912

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