Risk-sharing Contracts with Asymmetric Information

Renaud Bourlès () and Dominique Henriet ()
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Renaud Bourlès: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique
Dominique Henriet: GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique

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Abstract: We examine how risk-sharing is impacted by asymmetric information on the probability distribution of wealth. We define the optimal incentive compatible agreements in a two-agent model with two levels of wealth. When there is complete information on the probability of the different outcomes, the resulting allocation satisfies the mutuality principle (which states that everyone's final wealth depends only upon the aggregate wealth of the economy). This is no longer true when agents have private information regarding their probability distribution of wealth. Asymmetry of information (i) makes ex-post equal sharing unsustainable between two low-risk agents, and (ii) induces exchanges when agents have the same realization of wealth.

Keywords: mechanism design; asymmetric information; risk-sharing; risk-sharing asymmetric information mechanism design; Risk-sharing; Asymmetric information (search for similar items in EconPapers)
Date: 2026-03-05
Note: View the original document on HAL open archive server: https://amu.hal.science/hal-05535189v1
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05535189

DOI: 10.1057/grir.2011.2

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