Rationing rules for risky claims

Siddharth Chatterjee; Sinan Ertemel; Rajnish Kumar

doi:10.1016/j.jmateco.2023.102868

Rationing rules for risky claims

Siddharth Chatterjee, Sinan Ertemel^*, Rajnish Kumar

^*Corresponding author for this work

Department of Economics

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

We study rationing rules in a scenario where individuals have state-contingent claims over a resource. The rules must allocate shares before the resolution of uncertainty. We begin by characterizing ex-ante rules based on how they handle the inherent uncertainty in individual claims. The key axiom is “No Penalty for Risk”, which states that the rule should not penalize an individual if a situation differs from another only in terms of the presence of risk in the former situation compared to the latter situation's riskless claim. Regarding ex-post characterizations, our primary axiom is “Indifference to Independent Combination of Gambles”. If an individual has risk-neutral expected utility preferences, any rule that makes them indifferent between a given rationing problem and a corresponding independent combination of gambles between a degenerate gamble and a zero game (any rationing problem with a zero endowment) must be in the ex-post form. Lastly, we provide a partial comparative static result that supports the claim that individuals generally prefer ex-ante rules to ex-post rules when the resource level is low enough.

Original language	English
Article number	102868
Journal	Journal of Mathematical Economics
Volume	108
DOIs	https://doi.org/10.1016/j.jmateco.2023.102868
Publication status	Published - Oct 2023

Bibliographical note

Publisher Copyright:
© 2023 Elsevier B.V.

Funding

Sinan Ertemel acknowledges financial support from Istanbul Technical University BAP-39970 . The authors would like to extend their heartfelt gratitude to Hervé Moulin, William Thomson and Arunava Sen for their valuable feedback, which greatly contributed to shaping this work. They would also like to thank Juan Moreno-Ternero, Jens Leth Hougaard, Ruben Juarez, and Jingyi Xue for their helpful discussions at an early stage of the project. This work was supported by funding from British Council grant UGC-UKIERI 2016-17-059 and the British Academy Newton Mobility grant NMG2R2-100198.The authors declare the following financial interests/personal relationships which may be considered as potential competing interests: Sinan Ertemel reports financial support was provided by British Academy Newton Mobility Grant. Rajnish Kumar reports financial support was provided by British Council The UK-India Education and Research Initiative.Sinan Ertemel acknowledges financial support from Istanbul Technical UniversityBAP-39970. The authors would like to extend their heartfelt gratitude to Hervé Moulin, William Thomson and Arunava Sen for their valuable feedback, which greatly contributed to shaping this work. They would also like to thank Juan Moreno-Ternero, Jens Leth Hougaard, Ruben Juarez, and Jingyi Xue for their helpful discussions at an early stage of the project. This work was supported by funding from British Council grant UGC-UKIERI 2016-17-059 and the British Academy Newton Mobility grant NMG2R2-100198 .

Funders	Funder number
British Academy Newton Mobility	NMG2R2-100198
Istanbul Technical UniversityBAP-39970
UK-India
British Council	UGC-UKIERI 2016-17-059
Istanbul Teknik Üniversitesi	BAP-39970

Keywords

Ex-ante rules
Ex-post rules
Rationing
State-contingent claims

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10.1016/j.jmateco.2023.102868

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title = "Rationing rules for risky claims",

abstract = "We study rationing rules in a scenario where individuals have state-contingent claims over a resource. The rules must allocate shares before the resolution of uncertainty. We begin by characterizing ex-ante rules based on how they handle the inherent uncertainty in individual claims. The key axiom is “No Penalty for Risk”, which states that the rule should not penalize an individual if a situation differs from another only in terms of the presence of risk in the former situation compared to the latter situation's riskless claim. Regarding ex-post characterizations, our primary axiom is “Indifference to Independent Combination of Gambles”. If an individual has risk-neutral expected utility preferences, any rule that makes them indifferent between a given rationing problem and a corresponding independent combination of gambles between a degenerate gamble and a zero game (any rationing problem with a zero endowment) must be in the ex-post form. Lastly, we provide a partial comparative static result that supports the claim that individuals generally prefer ex-ante rules to ex-post rules when the resource level is low enough.",

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Rationing rules for risky claims

Abstract

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Keywords

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