On Positive Value of Information in Risk Sharing

Piotr Denderski and Christian Stoltenberg

No 15-074/VI, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We develop a novel argument why better public information can help countries to insure against idiosyncratic risk. Representative agents of developing and industrial countries receive public and private signals on their future income realization and engage in risk-sharing contracts with limited enforceability. Better public information has two opposite effects. First, it has a detrimental effect on risk sharing by limiting risk-sharing possibilities as emphasized by Hirshleifer (1971). Second, it mitigates the adverse selection problem resulting from private information which improves risk sharing. We find that better public information in developing countries ameliorates risk sharing in both developing and industrial countries.

Keywords: Social value of information; Sovereign risk; Limited enforcement (search for similar items in EconPapers)
JEL-codes: D31 D52 E21 (search for similar items in EconPapers)
Date: 2015-06-15
New Economics Papers: this item is included in nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20150074

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