The value of information in efficient risk-sharing arrangements

Research output: Contribution to journalArticle

48 Citations (Scopus)

Abstract

Suppose that agents share risks in competitive markets. We show that better information makes everyone worse off if the economy has a representative agent -that is, the economy's demand for state-contingent consumption equals the demand of a hypothetical agent who owns all the economy's wealth. The representative agent, moreover, is normatively unrepresentative: although each agent dislikes information, the "representative" agent is indifferent. Although we emphasize pure exchange, our results imply that a representative-agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing, even if it performs well otherwise.

Original languageEnglish (US)
Pages (from-to)509-524
Number of pages16
JournalAmerican Economic Review
Volume91
Issue number3
StatePublished - Jun 2001

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Value of information
Representative agent
Risk sharing
Competitive market
Wealth
Welfare effects

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

The value of information in efficient risk-sharing arrangements. / Schlee, Edward.

In: American Economic Review, Vol. 91, No. 3, 06.2001, p. 509-524.

Research output: Contribution to journalArticle

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