This paper studies efficient risk-sharing rules for the concave dominance order. For a univariate risk, it follows from a comonotone dominance principle, due to Landsberger and Meilijson [27], that efficiency is characterized by a comonotonicity condition. The goal of the paper is to generalize the comonotone dominance principle as well as the equivalence between efficiency and comonotonicity t...

Within uncertain technological progress, a firm has to decide when to update its technology and select a new one among a non-decreasing range over time. Under constant return to scale, the best existing technology is implemented. Replacement is triggered not only when the firm operated technology is sufficiently obsolete but also the wedge between the latest and the state of the arts grades is ...

We consider an economy à la Lucas (1978, Econometrica 46, 1429–1446) with a risk-averse representative agent. The exogenous growth rate of the economy follows a random walk. We characterize the set of utility functions for which it is efficient to discount more distant cash flows at a lower rate. The benchmark result is that, when the growth rate is almost surely nonnegative, the yield curve is...

This paper provides a model that allows for a criterion of admissibility based on a subjective state space. For this purpose, we build a non-Archimedean model of preference with subjective states, generalizing Blume, Brandenburger, and Dekel [2], who present a non-Archimedean model with exogenous states; and Dekel, Lipman, and Rustichini [4], who present an Archimedean model with an endogenous ...

By definition, “consequentialist” behaviour in finite decision trees is explicable by its consequences. Both cost-benefit tests and “consequentialist” choices of economic policy necessarily require distributional judgements. These should emerge from a social welfare objective incorporating interpersonal comparisons. To accommodate them, Arrow’s IIA condition should be weakened to independence o...

We study the portfolio decision of a household with limited information-processing capacity in a setting with recursive utility. We find that rational inattention combined with a preference for early resolution of uncertainty leads to a significant drop in the share of portfolios held in risky assets, even when the departure from standard expected utility with rational expectations is small. In...

Define the riskiness of a gamble as the reciprocal of the absolute risk aversion (ARA) of an individual with constant ARA who is indifferent between taking and not taking that gamble. We characterize this index by axioms, chief among them a “duality” axiom which, roughly speaking, asserts that less risk-averse individuals accept riskier gambles. The index is homogeneous of degree 1, monotonic w...

We show that an increase in uncertainty about the probability of being audited (ambiguity) increases tax compliance for ambiguity-averse taxpayers but reduces compliance for ambiguity lovers. Because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences, we conclude that fostering uncertainty about the probability of being audited may not be an effective...

A manager’s shareholders, board of directors, and potential future employers are continually assessing his ability. A rich literature has documented that this insight has profound implications for corporate governance because assessment generates incentives (good and bad), introduces assorted risks, and affects the various battles that rage among the relevant actors for corporate control. Conse...

We study ordinal Bayesian Nash equilibria of stable mechanisms in centralized matching markets under incomplete information. We show that truthtelling is an ordinal Bayesian Nash equilibrium of the revelation game induced by a common belief and a stable mechanism if and only if all the profiles in the support of the common belief have singleton cores. Our result matches the observations of Roth...