Equilibrium in risk-sharing games
The paper studies equilibrium sharing of risk among limited number of strategically-behaved agents. We propose a Nash game where agents' strategic sets consist of all possible sharing securities and pricing kernels that are consistent with Arrow-Debreu sharing rules. First, it is shown that the best response problem of each agent admits a unique solution. The risk-sharing Nash equilibrium admits a finite-dimensional characterisation and it is proved to be unique in the case of two agents. In Nash risk-sharing equilibrium agents choose to share random endowments that are different than their actual ones, and the shared securities are endogenously bounded, implying (amongst other things) loss of efficiency. In addition, an analysis regarding extremely risk tolerant agents indicates that they profit more from the Nash risk-sharing equilibrium as compared to the Arrow-Debreu one.
Year of publication: |
2014-12
|
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Authors: | Anthropelos, Michail ; Kardaras, Constantinos |
Institutions: | arXiv.org |
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