University of Leicester
Browse
JET_Denderski_Stoltenberg_Manuscript.pdf (487.52 kB)

Risk Sharing with Private and Public Information

Download (487.52 kB)
journal contribution
posted on 2020-04-16, 08:24 authored by Piotr Denderski, Christian Stoltenberg
In this paper, we revisit the conventional view on efficient risk sharing that advance information on future shocks is detrimental to welfare. In our model, risk-averse agents receive private and public signals on future income realizations and engage in insurance contracts with limited enforceability. Consistent with the conventional view, better private and public signals are detrimental to welfare when only one type of signal is informative. Our main novel result applies when both signals are informative. In this case, we show that better public information can improve the allocation of risk when private signals are sufficiently precise. More precise public signals spread out the outside option values of high-income agents with high and low public signals and their willingness to transfer resources to low-income agents decreases. With informative private signals, however, more informative public signals increase outside option values of agents with a high signal by less than outside options of agents with a low signal decrease, facilitating more transfers. The latter effect dominates the former when private signals are sufficiently precise.

History

Citation

Journal of Economic Theory, Volume 186, March 2020, 104988

Author affiliation

School of Business

Version

  • AM (Accepted Manuscript)

Published in

Journal of Economic Theory

Volume

186

Pagination

104988 - 104988

Publisher

Elsevier

issn

0022-0531

eissn

1095-7235

Acceptance date

2019-12-19

Copyright date

2020

Publisher version

https://www.sciencedirect.com/science/article/pii/S0022053118304885#!

Language

English

Usage metrics

    University of Leicester Publications

    Categories

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC