Sharing Risk Efficiently under Suboptimal Punishments for Defection

Drew Saunders ()

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 24

Abstract: I study efficient risk-sharing in an endowments economy when enforcement is achieved by the threat of reversion to punishments that may be less severe than autarkic consumption. I characterize (up to a technical condition) the set of allocations that may be interpreted as efficient with respect to some punishment convention. The conditions rationalizing such efficiency are very weak; they are (i) resource exhaustion, (ii) satisfaction of individual rationality constraints at each continuation, and (iii) finiteness of the value of the allocation under the implicit decentralizing price system. I show how efficient allocations may be decentralized, and I state versions of the Welfare Theorems for these economies.

Keywords: risk-sharing; limited enforcement; limited commitment (search for similar items in EconPapers)
Date: 2010
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Working Paper: Sharing Risk Efficiently under Suboptimal Punishments for Defection (2007)
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DOI: 10.2202/1935-1704.1647

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