Equilibrium in risk-sharing games
Michail Anthropelos and
Papers from arXiv.org
The large majority of risk-sharing transactions involve few agents, each of whom can heavily influence the structure and the prices of securities. This paper proposes a game where agents' strategic sets consist of all possible sharing securities and pricing kernels that are consistent with Arrow-Debreu sharing rules. First, it is shown that agents' best response problems have unique solutions. The risk-sharing Nash equilibrium admits a finite-dimensional characterisation and it is proved to exist for arbitrary number of agents and be unique in the two-agent game. In equilibrium, agents declare beliefs on future random outcomes different than their actual probability assessments, and the risk-sharing securities are endogenously bounded, implying (among other things) loss of efficiency. In addition, an analysis regarding extremely risk tolerant agents indicates that they profit more from the Nash risk-sharing equilibrium as compared to the Arrow-Debreu one.
Date: 2014-12, Revised 2016-07
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-mic
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Working Paper: Equilibrium in risk-sharing games (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1412.4208
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