EconPapers    
Economics at your fingertips  
 

Communication in Private-Information Models: Theory and Computation

Edward Prescott ()

The Geneva Risk and Insurance Review, 2003, vol. 28, issue 2, 105-130

Abstract: Communication and no-communication versions of a two-stage principal-agent model are compared. The models contain a risk-averse agent and two sources of private information, a shock to preferences followed by a productive action. Both models are formulated as linear programs, which are then used to compute solutions to examples. For the communication model, an alternative method of accounting for the utility from off-equilibrium strategies is derived. This method greatly reduces the size of the linear program. For the no-communication model a Revelation-Principle like proof is provided. In simple cases, a sufficient condition for communication to be valuable is derived. In these cases, communication improves risk-sharing in bad states of the world. In more complicated cases, computed examples demonstrate how communication may also alter labor supply. Further examples demonstrate how action and consumption lotteries may separate agents by their shock. The Geneva Papers on Risk and Insurance Theory (2003) 28, 105–130. doi:10.1023/A:1026388604459

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (7) Track citations by RSS feed

Downloads: (external link)
http://www.palgrave-journals.com/grir/journal/v28/n2/pdf/grir2003157a.pdf Link to full text PDF (application/pdf)
http://www.palgrave-journals.com/grir/journal/v28/n2/full/grir2003157a.html Link to full text HTML (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:genrir:v:28:y:2003:i:2:p:105-130

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10713

Access Statistics for this article

The Geneva Risk and Insurance Review is currently edited by Michael Hoy and Nicolas Treich

More articles in The Geneva Risk and Insurance Review from Palgrave Macmillan, International Association for the Study of Insurance Economics (The Geneva Association) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla ().

 
Page updated 2019-10-02
Handle: RePEc:pal:genrir:v:28:y:2003:i:2:p:105-130