- The composite iteration algorithm for finding efficient and financially fair risk-sharing rules
- Journal of mathematical economics
- Pages (from-to)
- Document type
Faculty of Economics and Business (FEB)
- Amsterdam School of Economics Research Institute (ASE-RI)
We consider the problem of finding an efficient and fair ex-ante rule for division of an uncertain monetary outcome among a finite number of von Neumann-Morgenstern agents. Efficiency is understood here, as usual, in the sense of Pareto efficiency subject to the feasibility constraint. Fairness is defined as financial fairness with respect to a predetermined pricing functional. We show that efficient and financially fair allocation rules are in one-to-one correspondence with positive eigenvectors of a nonlinear homogeneous and monotone mapping associated to the risk sharing problem. We establish relevant properties of this mapping. On the basis of this, we obtain a proof of existence and uniqueness of solutions via nonlinear Perron-Frobenius theory, as well as a proof of global convergence of the natural iterative algorithm. We argue that this algorithm is computationally attractive, and discuss its rate of convergence.
- go to publisher's site
- Accepted author manuscript
If you believe that digital publication of certain material infringes any of your rights or (privacy) interests, please let the Library know, stating your reasons. In case of a legitimate complaint, the Library will make the material inaccessible and/or remove it from the website. Please Ask the Library, or send a letter to: Library of the University of Amsterdam, Secretariat, Singel 425, 1012 WP Amsterdam, The Netherlands. You will be contacted as soon as possible.