The Value of Information in Efficient Risk-Sharing Arrangements
American Economic Review · 2001 · Volume 91 · Issue 3
Abstract
Suppose that agents share risks in competitive markets. We show that better information makes everyone worse off if the economy has a representative agent--that is, the economy's demand for state-contingent consumption equals the demand of a hypothetical agent who owns all the economy's wealth. The representative agent, moreover, is normatively unrepresentative: although each agent dislikes information, the "representative" agent is indifferent. Although we emphasize pure exchange, our results imply that a representative-agent model might seriously misstate the welfare effects of improved information in an economy with production and risk sharing, even if it performs well otherwise.
Keywords
Search, Learning, Information and Knowledge, Communication, Belief, Criteria for Decision-Making under Risk and Uncertainty
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