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Strategy-Proof Risk Sharing

  • Biung-Ghi Ju

    (Department of Economics, The University of Kansas)

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    We consider risk sharing problems with a single good and ?nite number of states. Agents have a common prior and their preferences are represented in the expected utility form and are risk averse. We study efficient and individually rational risk sharing rules satisfying strategy-proofness, the requirement that no one can ever be bene?ted by misrepresenting his preference. When aggregate certainty holds, we show that ¡°?xed price selections¡± from the Walrasian correspondence are the only rules satisfying efficiency, individual rationality, and strategy-proofness. However, when aggregate uncertainty holds, we show that there exists no rule satisfying the three requirements. Moreover, in the two agents case, we show that dictatorial rules are the only efficient and strategy-proof rules. Dropping the common prior assumption in the model, we show that this assumption is necessary and sufficient for the existence of rules satisfying the three main requirements in the two agents and aggregate certainty case.

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    Paper provided by University of Kansas, Department of Economics in its series WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS with number 200305.

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    Length: 37 pages
    Date of creation: Apr 2003
    Date of revision: Apr 2003
    Handle: RePEc:kan:wpaper:200305
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