The value of information in risk-sharing environments with unawareness
The value of information in risk-sharing environments with unawareness
The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer [1971] and Schlee [2001] that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an “awareness signal” that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. Depending on the allocation of endowments, this asymmetry makes some agents strictly better off and others strictly worse off. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.
University of Southampton
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
25 January 2016
Galanis, Spyros
66c2b7af-6f28-4319-be60-787796b4054c
Galanis, Spyros
(2016)
The value of information in risk-sharing environments with unawareness
(Discussion Papers in Economics and Econometrics, 1602)
Southampton, GB.
University of Southampton
25pp.
Record type:
Monograph
(Discussion Paper)
Abstract
The value of information is examined in a risk-sharing environment with unawareness and complete markets. Information and awareness are symmetric among agents, who have a clear understanding of their actions and deterministic payoffs. We show with examples that public information can make some agents strictly better off at the expense of others, contrasting the standard results of Hirshleifer [1971] and Schlee [2001] that the value of public information is negative for all when risk averse agents are fully insured. We identify the source of this problem to be that, as awareness varies across states, it creates an “awareness signal” that the agents misunderstand and treat asymmetrically. As a result, risk-sharing opportunities that are available when this signal is not used, vanish when it is used. Depending on the allocation of endowments, this asymmetry makes some agents strictly better off and others strictly worse off. We identify a property, Conditional Independence, which we show is sufficient for the value of public information to be negative for all.
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1602 The Value of Information in Risk-Sharing Environments with Unawareness.pdf
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Published date: 25 January 2016
Organisations:
Economics
Identifiers
Local EPrints ID: 387014
URI: http://eprints.soton.ac.uk/id/eprint/387014
ISSN: 0966-4246
PURE UUID: 9cf7cb12-9078-4a66-81cc-5d5ce42fa8eb
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Date deposited: 10 Feb 2016 11:40
Last modified: 14 Mar 2024 22:42
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Author:
Spyros Galanis
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