Bilateral risk sharing with heterogeneous beliefs and...

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Articles Articles Bilateral risk sharing with heterogeneous beliefs and exposure constraints - Boonen, Tim J.

Collection: Articles

Title: Bilateral risk sharing with heterogeneous beliefs and exposure constraints / Tim J. Boonen, Mario Ghossoub

Notes: Sumario: This paper studies bilateral risk sharing under no aggregate uncertainty, where one agent has Expected-Utility preferences and the other agent has Rankdependent utility preferences with a general probability distortion function. We impose exogenous constraints on the risk exposure for both agents, and we allow for any type or level of belief heterogeneity.We show that Pareto-optimal risk-sharing contracts can be obtained via a constrained utility maximization under a participation constraint of the other agent. This allows us to give an explicit characterization of optimal risk-sharing contracts. In particular, we show that an optimal risk-sharing contract contains allocations that are monotone functions of the likelihood ratio, where the latter is obtained from Lebesgue's Decomposition Theorem.

Other categories: 6

Derechos: In Copyright (InC): http://rightsstatements.org/vocab/InC/1.0/

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