The Value of Information in Efficient Risk-Sharing Arrangements

Edward Schlee

American Economic Review, 2001, vol. 91, issue 3, 509-524

Abstract: 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.

JEL-codes: D81 D83 (search for similar items in EconPapers)
Date: 2001
Note: DOI: 10.1257/aer.91.3.509
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Citations: View citations in EconPapers (73)

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