The Value of Information in Efficient Risk-Sharing Arrangements
AbstractSuppose 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.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 91 (2001)
Issue (Month): 3 (June)
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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