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Aarpád Ábrahám, Nicola Pavoni, The Efficient Allocation of Consumption under Moral Hazard and Hidden Access to the Credit Market, Journal of the European Economic Association, Volume 3, Issue 2-3, 1 May 2005, Pages 370–381, https://doi.org/10.1162/jeea.2005.3.2-3.370
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Abstract
In this paper, we describe the properties of the optimal allocation of consumption in a world with moral hazard and hidden borrowng and lending. We discuss how and under what conditions the efficient allocation can be distinguished from that of the permanent income (self-insurance) model. We also compare our allocation with the complete markets (full information) case, and with the standard moral hazard model with monitorable and fully contractible asset holdings.
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© 2005 by the European Economic Association
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