Strategy-Proof Risk Sharing

Biung-Ghi Ju ()

No 200305, WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS from University of Kansas, Department of Economics

Abstract: We consider risk sharing problems with a single good and ?nite number of states. Agents have a common prior and their preferences are represented in the expected utility form and are risk averse. We study efficient and individually rational risk sharing rules satisfying strategy-proofness, the requirement that no one can ever be bene?ted by misrepresenting his preference. When aggregate certainty holds, we show that ¡°?xed price selections¡± from the Walrasian correspondence are the only rules satisfying efficiency, individual rationality, and strategy-proofness. However, when aggregate uncertainty holds, we show that there exists no rule satisfying the three requirements. Moreover, in the two agents case, we show that dictatorial rules are the only efficient and strategy-proof rules. Dropping the common prior assumption in the model, we show that this assumption is necessary and sufficient for the existence of rules satisfying the three main requirements in the two agents and aggregate certainty case.

Keywords: Risk sharing; strategy-proofness; efficiency; individual rationality. (search for similar items in EconPapers)
Pages: 37 pages
Date: 2003-04, Revised 2003-04
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Journal Article: Strategy-proof risk sharing (2005)
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