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The Value of Information: Disadvantageous Risk-Sharing Markets

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  • Sulganik, Eyal
  • Zilcha, Itzhak

Abstract

The narrow applicability of Blackwell's result that "more information" is desirable, lies in the fact in economic models once a signal is observed by all economic agents their opportunity sets may vary. We show that Blackwell's theorem does not hold when the feasible set of actions is signal-dependent. We find sufficient condition for the result to hold under these conditions. We also apply this result to two economic models where risk sharing markets are widespread: A model with futures markets and hedging and a model of life cycle where the lifetime horizon is a random variable. In both cases we show that in the absence of risk-sharing markets (i.e., futures markets or life insurance markets) more information is advantageous. On the other hand, when such markets are introduced we may find many cases where more information is disadvantageous to the risk-averse agents.
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Suggested Citation

  • Sulganik, Eyal & Zilcha, Itzhak, 1994. "The Value of Information: Disadvantageous Risk-Sharing Markets," Foerder Institute for Economic Research Working Papers 275586, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275586
    DOI: 10.22004/ag.econ.275586
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    References listed on IDEAS

    as
    1. Green, Jerry R, 1981. "Value of Information with Sequential Futures Markets," Econometrica, Econometric Society, vol. 49(2), pages 335-358, March.
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    9. Gershon Feder & Richard E. Just & Andrew Schmitz, 1980. "Futures Markets and the Theory of the Firm under Price Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(2), pages 317-328.
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    Cited by:

    1. Sulganik, Eyal, 1995. "On the structure of Blackwell's equivalence classes of information systems," Mathematical Social Sciences, Elsevier, vol. 29(3), pages 213-223, June.

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    More about this item

    Keywords

    Financial Economics; Marketing; Risk and Uncertainty;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D2 - Microeconomics - - Production and Organizations
    • D3 - Microeconomics - - Distribution
    • D4 - Microeconomics - - Market Structure, Pricing, and Design

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