Pool size and the sustainability of optimal risk-sharing agreements |
| |
Authors: | Francesca Barigozzi Renaud Bourlès Dominique Henriet Giuseppe Pignataro |
| |
Institution: | 1.Department of Economics,University of Bologna,Bologna,Italy;2.Centrale Marseille (Aix-Marseille School of Economics), CNRS & EHESS,Marseille Cedex 20,France |
| |
Abstract: | We study a risk-sharing agreement where members exert a loss-mitigating action which decreases the amount of reimbursements to be paid in the pool. The action is costly and members tend to free-ride on it. An optimal risk-sharing agreement maximizes the expected utility of a representative member with respect to both the coverage and the (collective) action such that efficiency is restored. We study the sustainability of the optimal agreement as equilibrium in a repeated game with indefinite number of repetitions. When the optimal agreement is not enforceable, the equilibrium with free-riding emerges. We identify an interesting trade-off: welfare generated by the optimal risk-sharing agreement increases with the size of the pool, but at the same time the pool size must not be too large for collective choices to be self-enforcing. This generates a discontinuous effect of pool size on welfare. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|