Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/296432 
Year of Publication: 
2023
Citation: 
[Journal:] Theoretical Economics [ISSN:] 1555-7561 [Volume:] 18 [Issue:] 3 [Year:] 2023 [Pages:] 993-1022
Publisher: 
The Econometric Society, New Haven, CT
Abstract: 
The analysis of optimal risk sharing has been thus far largely restricted to non-expected utility models with concave utility functions, where concavity is an expression of ambiguity aversion and/or risk aversion. This paper extends the analysis to α-maxmin expected utility, Choquet expected utility, and Cumulative Prospect Theory, which accommodate ambiguity seeking and risk seeking attitudes. We introduce a novel methodology of quasidifferential calculus of Demyanov and Rubinov (1986, 1992) and argue that it is particularly well-suited for the analysis of these three classes of utility functions which are neither concave nor differentiable. We provide characterizations of quasidifferentials of these utility functions, derive first-order conditions for Pareto optimal allocations under uncertainty, and analyze implications of these conditions for risk sharing with and without aggregate risk.
Subjects: 
ambiguity
Choquet expected utility
cumulative prospect theory
Pareto optimality
Quasidifferential calculus
rank-dependent expected utility
»-MaxMin expected utility
JEL: 
C61
D50
D60
D81
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc Logo
Document Type: 
Article

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