Dynamic Stackelberg Game with Risk-Averse Players: Optimal Risk-Sharing under Asymmetric Information

Dan Protopopescu ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: The objective of this paper is to clarify the interactive nature of the leader-follower relationship when both players are endogenously risk-averse. The analysis is placed in the context of a dynamic closed-loop Stackelberg game with private information. The case of a risk-neutral leader, very often discussed in the literature, is only a borderline possibility in the present study. Each player in the game is characterized by a risk-averse type which is unknown to his opponent. The goal of the leader is to implement an optimal incentive compatible risk-sharing contract. The proposed approach provides a qualitative analysis of adaptive risk behavior profiles for asymmetrically informed players in the context of dynamic strategic interactions modelled as incentive Stackelberg games.

Keywords: Dynamic stochastic Stackelberg game; optimal path; closed-loop control; endogenous risk-aversion; adaptive risk management; optimal risk-sharing. (search for similar items in EconPapers)
JEL-codes: C71 C73 D81 D82 (search for similar items in EconPapers)
Pages: 26
Date: 2009-12-11
New Economics Papers: this item is included in nep-cta and nep-gth
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:797.09

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