Optimal risk-sharing rules and equilibria with Choquet-expected-utility
AbstractThis paper explores risk-sharing and equilibrium in a general equilibrium set-up wherein agents are non-additive expected utility maximizers. We show that when agents have the same convex capacity, the set of Pareto-optima is independent of it and identical to the set of optima of an economy in which agents are expected utility maximizers and have same probability. Hence, optimal allocations are comonotone. This enables us to study the equilibrium set. When agents have different capacities, matters are much more complex (as in the vNM case). We give a general characterization and show how it simplifies when Pareto-optima are comonotone. We use this result to characterize Pareto-optima when agents have capacities that are the convex transform of some probability distribution. comonotonicity of Pareto-optima is also shown to be true in the two-state case if the intersection of the core of agents' capacities is non-empty; Pareto-optima may then be fully characterized in the two-agent, two-state case. This comonotonicity result does not generalize to more than two states as we show with a counter-example. Finally, if there is no-aggregate risk, we show that non-empty core intersection is enough to guarantee that optimal allocations are full-insurance allocation. This result does not require convexity of preferences.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Mathematical Economics.
Volume (Year): 34 (2000)
Issue (Month): 2 (October)
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Web page: http://www.elsevier.com/locate/jmateco
Other versions of this item:
- Alain Chateauneuf & Rose Anne Dana & Jean-Marc Tallon, 2000. "Optimal risk-sharing rules and equilibria with Choquet-expected-utility," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00451997, HAL.
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
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