Kevin C. Murdock

Intrinsic Motivation and Optimal Incentive Contracts

I study the role of intrinsic motivation on optimal incentive contracts. Agents engage in efforts to generate projects with both financial return and intrinsic value to the agent. In a neutral environment, where intrinsic motivation has no direct effect on the disutility of effort, static contracts are unaffected by intrinsic motivation. In contrast, the firms profits from an implicit contract are increasing in the degree to which the agent is intrinsically motivated, showing that implicit contracts and intrinsic motivation are complements. The results are further extended to consider the role of multiple implicit contracts and product market strategy.

The Role of Government Contracts in Discretionary Reinsurance Markets for Natural Disasters

A recent surge in natural disaster losses in the United States has created widespread disruptions in the property insurance market and generated calls for federal protection against natural disaster risk. This article examines the market for disaster insurance in the United States and finds that insurance markets are limited in their ability to intertemporally diversify catastrophic risk. In a targeted response, this article proposes a new form of federal reinsurance based on the auctioning of multiple peril catastrophe call spread options that cover industry losses in the range of

Financial Restraint and the Market Enhancing View

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Financial Restraint: Towards a New Paradigm

50 billion. This article argues that the sale of these catastrophe excess-of-loss contracts utilizes the unique intertemporal diversification capabilities of the federal government to expand the market for natural disaster risk while enhancing the private market equilibrium for insurance.

Deposit Mobilization Through Financial Restraint

Analysts of development have long discussed the proper role of the government in promoting economic growth. Although nuances differ, in general, two distinct approaches have dominated, one emphasizing the role of the market, the other emphasizing the role of the state in promoting development. The Market Friendly View (World Bank, 1993) presumes that — in the absence of inefficient government intervention — the market generally functions efficiently, and so the government should act to ensure secure property rights and competition, but otherwise not interfere in economic activity. In contrast, the Developmental State View (Johnson, 1982; Amsden, 1989; Wade, 1990) presumes that market failure is pervasive and thus government intervention is necessary to mobilize savings, allocate resources efficiently and promote technological catch-up.