Al-Najjar, Nabil, Anderlini, Luca and Felli, Leonardo (2002) Unforeseen contingencies. 3271. Centre for Economic Policy Research, London, UK.Full text not available from this repository.
We develop a model of unforeseen contingencies. These are contingencies that are understood by economic agents — their consequences and probabilities are known — but are such that every description of such events necessarily leaves out relevant features that have a non-negligible impact on the parties’ expected utilities. Using a simple co-insurance problem as a backdrop, we introduce a model where states are described in terms of objective features, and the description of an event specifies a finite number of such features. In this setting, unforeseen contingencies are present in the coinsurance problem when the first-best risk-sharing contract varies with the states of nature in a complex way that makes it highly sensitive to the component features of the states. In this environment, although agents can compute expected pay-offs, they are unable to include in any ex ante agreement a description of the relevant contingencies that captures (even approximately) the relevant complexity of the risky environment.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2002 Nabir I Al-Najjar, Luca Anderlini and Leonardo Felli|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory|
|Journal of Economic Literature Classification System:||C - Mathematical and Quantitative Methods > C6 - Mathematical Methods and Programming > C69 - Other
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D89 - Other
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Departments > Economics
Research centres and groups > Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD)
Collections > LSE Financial Markets Group (FMG) Working Papers
|Date Deposited:||04 Jun 2008 14:36|
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