Optimal risk-sharing rules and equilibria with Choquet-expected-utility

This paper explores risk-sharing and equilibrium in a general equilibrium s et-up wherein agents are non-additive expected utility maximizers. We show that when agents have the same convex capacity, the set of Pareto-optima is independent of it and identical to the set of optima of an economy in whic h agents are expected utility maximizers and have the same probability. Hen ce, optimal allocations an comonotone. This enables us to study the equilib rium set. When agents have different capacities, the matters are much more complex (as in the vNM case). We give a general characterization and show h ow it simplifies when Pareto-optima are comonotone. We use this result to c haracterize Pareto-optima when agents have capacities that are the convex t ransform of some probability distribution. Comonotonicity of Pareto-optima is also shown to be true in the two-state case if the intersection of the c ore of agents' capacities is non-empty; Pareto-optima may then be fully cha racterized in the two-agent, two-state case. This comonotonicity result doe s not generalize to more than two states as we show with a counter-example. Finally, if there is no-aggregate risk, we show that non-empty core inters ection is enough to guarantee that optimal allocations are full-insurance a llocation. This result does not require convexity of preferences. (C) 2000 Elsevier Science S.A. All rights reserved.