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Risk-sharing Contracts with Asymmetric Information

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  • Renaud Bourl�s

    (Ecole Centrale Marseille and GREQAM – IDEP, Technopôle de Château – Gombert, 38, rue Frédéric Joliot – Curie, 13451 MARSEILLE Cedex 20, France. E-mails: renaud.bourles@centrale-marseille.fr; dominique.henriet@centrale-marseille.fr)

  • Dominique Henriet

    (Ecole Centrale Marseille and GREQAM – IDEP, Technopôle de Château – Gombert, 38, rue Frédéric Joliot – Curie, 13451 MARSEILLE Cedex 20, France. E-mails: renaud.bourles@centrale-marseille.fr; dominique.henriet@centrale-marseille.fr)

Abstract

We examine how risk-sharing is impacted by asymmetric information on the probability distribution of wealth. We define the optimal incentive compatible agreements in a two-agent model with two levels of wealth. When there is complete information on the probability of the different outcomes, the resulting allocation satisfies the mutuality principle (which states that everyone's final wealth depends only upon the aggregate wealth of the economy). This is no longer true when agents have private information regarding their probability distribution of wealth. Asymmetry of information (i) makes ex-post equal sharing unsustainable between two low-risk agents, and (ii) induces exchanges when agents have the same realization of wealth.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Risk and Insurance Review.

Volume (Year): 37 (2012)
Issue (Month): 1 (March)
Pages: 27-56

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Handle: RePEc:pal:genrir:v:37:y:2012:i:1:p:27-56

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References

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Cited by:
  1. Renaud Bourlès & Juliette Rouchier, 2012. "Evolving Informal Risk-Sharing Cooperatives and Other-Regarding Preferences," AMSE Working Papers 1243, Aix-Marseille School of Economics, Marseille, France, revised Dec 2012.
  2. Mohamed Belhaj & Renaud Bourl?s & Fr?d?ric Dero?an, 2014. "Risk-Taking and Risk-Sharing Incentives under Moral Hazard," American Economic Journal: Microeconomics, American Economic Association, vol. 6(1), pages 58-90, February.
  3. Renaud Bourlès & Dominique Henriet, 2008. "Mutual Insurance With Asymmetric Information: The Case Of Adverse Selection," Working Papers halshs-00278178, HAL.

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