Stable coalitions in a continuous-time model of risk sharing

Hector Chade, B. Taub

Research output: Contribution to journalArticle

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 languageEnglish (US)
Pages (from-to)24-38
Number of pages15
JournalMathematical social sciences
Volume50
Issue number1
DOIs
StatePublished - Jul 1 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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