Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2015-06-15
Number: 15-074/VI
Author-Name: Piotr Denderski
Author-Workplace-Name: VU University Amsterdam, the Netherlands
Author-Name: Christian Stoltenberg
Author-Workplace-Name: University of Amsterdam, the Netherlands
Title: On Positive Value of Information in Risk Sharing
Abstract: We develop a novel argument why better public information can help countries to insure against idiosyncratic risk. Representative agents of developing and industrial countries receive public and private signals on their future income realization and engage in risk-sharing contracts with limited enforceability. Better public information has two opposite effects. First, it has a detrimental effect on risk sharing by limiting risk-sharing possibilities as emphasized by Hirshleifer (1971). Second, it mitigates the adverse selection problem resulting from private information which improves risk sharing. We find that better public information in developing countries ameliorates risk sharing in both developing and industrial countries.
Classification-JEL: E21, D31, D52
Keywords: Social value of information, Sovereign risk, Limited enforcement
File-Url: https://papers.tinbergen.nl/15074.pdf
File-Format: application/pdf
File-Size: 524986 bytes
Handle: RePEc:tin:wpaper:20150074