TY - JOUR
T1 - The value of information in efficient risk-sharing arrangements
AU - Schlee, Edward
PY - 2001/6
Y1 - 2001/6
N2 - 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.
AB - 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.
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U2 - 10.1257/aer.91.3.509
DO - 10.1257/aer.91.3.509
M3 - Article
AN - SCOPUS:0038043530
SN - 0002-8282
VL - 91
SP - 509
EP - 524
JO - American Economic Review
JF - American Economic Review
IS - 3
ER -