Optimal sharing with an infinite number of commodities in the presence of optimistic and pessimistic agents

Aloisio Araujo, Jean-Marc Bonnisseau, Alain Chateauneuf and Rodrigo Novinski

Economic Theory, 2017, vol. 63, issue 1, No 6, 157 pages

Abstract: Abstract We prove that under mild conditions individually rational Pareto optima will exist even in the presence of non-convex preferences. We consider decision-makers (DMs) dealing with a countable flow of pay-offs or choosing among financial assets whose outcomes depend on the realization of a countable set of states of the world. Our conditions for the existence of Pareto optima can be interpreted as a requirement of impatience in the first context and of some pessimism or not unrealistic optimism in the second context. A non-existence example is provided when, in the second context, some DM is too optimistic. We furthermore show that at an individually rational Pareto optimum at most one strictly optimistic DM will avoid ruin at each state or date. Considering a risky context, this entails that even if risk averters will share risk in a comonotonic way as usual, at most one classical strong risk lover will avoid ruin at each state or date. Finally, some examples illustrate circumstances when a risk averter could take advantage of sharing risk with a risk lover rather than with a risk averter.

Keywords: Pareto optima; Non-convex preferences; Countable set of commodities; Impatience; Optimism; Pessimism (search for similar items in EconPapers)
JEL-codes: D60 D91 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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Working Paper: Optimal sharing with an infinite number of commodities in the presence of optimistic and pessimistic agents (2017)
Working Paper: Optimal sharing with an infinite number of commodities in the presence of optimistic and pessimistic agents (2017)
Working Paper: Optimal sharing with an infinite number of commodities in the presence of optimistic and pessimistic agents (2017)
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DOI: 10.1007/s00199-016-0985-0

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