Optimal Profit-shar'ing Contract and Investment in an Interest-free Islamic Economy
Attempts to model Islamic profit-sharing financial contracts and analyse their implications. Models for certainty and uncertainty with and without complete information are presented and analysed. Main conclusions are: (a) Investment wiil increase when profit-sharing prevails; (b) Contracting on the basis of observable indicators that may be correlated with the unobservable factors would prevent any market failure; (c) Individual contracting and arbitrage would enable a market-determined sharing ratio for the economy to be determined; (d) To overcome the problem of moral hazard, the sharing rules that are a function of observables which are correlated with unobservable events or actions should be encouraged. Analytical. Mathematical. For professional economists only. Documented.
Savings and Uncertainty: The Case of an Islamic Interest-free Economy
It is not obvious that uncertainty of return of savings would reduce the size of savings. At best this effect is indeterminate. Since the rate of return on savings is likely to be higher in an Islamic setting, the negative effect of uncertainty would be more than compensated. Analytical. Uses econometric techniques. For professional economists only. Documented.