| Abstract: | We analyze the evolution of contract participation and evaluate the selection of risk-sharing contracts in the presence of moral hazard. Organizations specify rules for sharing output among producers, and so affect the extent of private investment in production. Organizations are rigid, as some details of the contract are fixed, but people are free to move around. In the presence of rigidity, equilibrium displays coordination failure because potentially efficient contracts can fail to attract participants. Methods of evolutionary stability are used to select equilibria when organizations compete for members. We identify stable contracts which survive competition against any other. Stable contracts need not be efficient, but for large groups the loss becomes small. |
