The Insurance Is the Lemon: Failing to Index Contracts

• 成果类型: Article
• 署名作者: Hartman-Glaser, Barney; Hebert, Benjamin
• 署名单位: University of California System; University of California Los Angeles; Stanford University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF FINANCE
• ISSN/ISSBN: 0022-1082
• DOI: 10.1111/jofi.12856
• 发表日期: 2020
• 页码: 463-506
• 关键词: incomplete contracts; PRIVATE; contingencies; RENEGOTIATION; equilibrium; INFORMATION; MARKETS

摘要

We model the widespread failure of contracts to share risk using available indices. A borrower and lender can share risk by conditioning repayments on an index. The lender has private information about the ability of this index to measure the true state that the borrower would like to hedge. The lender is risk-averse and thus requires a premium to insure the borrower. The borrower, however, might be paying something for nothing if the index is a poor measure of the true state. We provide sufficient conditions for this effect to cause the borrower to choose a nonindexed contract instead.