Pool size and the sustainability of optimal risk-sharing agreements

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• 作者：Francesca Barigozzi ; Renaud Bourlès ; Dominique Henriet…
• 关键词：Optimal risk ; sharing agreement ; Loss ; mitigating actions ; Repeated interactions ; Collectively optimal vs Nash behaviors
• 刊名：Theory and Decision
• 出版年：2017
• 出版时间：February 2017
• 年：2017
• 卷：82
• 期：2
• 页码：273-303
• 全文大小：
• 刊物类别：Business and Economics
• 刊物主题：Economic Theory/Quantitative Economics/Mathematical Methods; Game Theory, Economics, Social and Behav. Sciences; Operation Research/Decision Theory; Behavioral/Experimental Economics; Statistics for B
• 出版者：Springer US
• ISSN：1573-7187
• 卷排序：82

文摘

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.