Stable coalitions in a continuous-time model of risk sharing

Hector Chade; B. Taub

doi:10.1016/j.mathsocsci.2005.02.001

Stable coalitions in a continuous-time model of risk sharing

Hector Chade, B. Taub

Economics

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

1 Scopus citations

Abstract

In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk-averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because the processes are mutually independent. We characterize the payoff from an insurance contracting scheme of this type, and we investigate whether such a scheme would survive as an equilibrium in a noncooperative setting. We focus on the stability of cooperative arrangements with respect to the dynamic formation of coalitions. The economy "crystallizes" into a collection of coalitions in equilibrium.

Original language	English (US)
Pages (from-to)	24-38
Number of pages	15
Journal	Mathematical social sciences
Volume	50
Issue number	1
DOIs	https://doi.org/10.1016/j.mathsocsci.2005.02.001
State	Published - Jul 2005

Keywords

Brownian motion
Coalitions
Optimal stopping
Risk sharing

ASJC Scopus subject areas

Sociology and Political Science
Social Sciences(all)
Psychology(all)
Statistics, Probability and Uncertainty

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10.1016/j.mathsocsci.2005.02.001

Cite this

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abstract = "In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk-averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because the processes are mutually independent. We characterize the payoff from an insurance contracting scheme of this type, and we investigate whether such a scheme would survive as an equilibrium in a noncooperative setting. We focus on the stability of cooperative arrangements with respect to the dynamic formation of coalitions. The economy {"}crystallizes{"} into a collection of coalitions in equilibrium.",

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note = "Funding Information: The authors thank an anonymous referee for comments. Taub's research currently supported by National Science Foundation grant 0317700.",

year = "2005",

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AU - Chade, Hector

AU - Taub, B.

N1 - Funding Information: The authors thank an anonymous referee for comments. Taub's research currently supported by National Science Foundation grant 0317700.

PY - 2005/7

Y1 - 2005/7

N2 - In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk-averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because the processes are mutually independent. We characterize the payoff from an insurance contracting scheme of this type, and we investigate whether such a scheme would survive as an equilibrium in a noncooperative setting. We focus on the stability of cooperative arrangements with respect to the dynamic formation of coalitions. The economy "crystallizes" into a collection of coalitions in equilibrium.

AB - In an economy with a continuum of individuals, each individual has a stochastic, continuously evolving endowment process. Individuals are risk-averse and would therefore like to insure their endowment processes. It is feasible to obtain insurance by pooling endowments across individuals because the processes are mutually independent. We characterize the payoff from an insurance contracting scheme of this type, and we investigate whether such a scheme would survive as an equilibrium in a noncooperative setting. We focus on the stability of cooperative arrangements with respect to the dynamic formation of coalitions. The economy "crystallizes" into a collection of coalitions in equilibrium.

KW - Brownian motion

KW - Coalitions

KW - Optimal stopping

KW - Risk sharing

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JO - Mathematical Social Sciences

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Stable coalitions in a continuous-time model of risk sharing

Abstract

Keywords

ASJC Scopus subject areas

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