Stable coalitions in a continuous-time model of risk sharing

Chade, H.; Taub, B.

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.

Citation

Chade, H., & Taub, B. (2005). Stable coalitions in a continuous-time model of risk sharing. Mathematical Social Sciences, 50(1), 24-38. https://doi.org/10.1016/j.mathsocsci.2005.02.001

• Journal Article Type: Article
• Publication Date: Jul 1, 2005
• Deposit Date: Jul 20, 2011
• Journal: Mathematical Social Sciences
• Print ISSN: 0165-4896
• Electronic ISSN: 1879-3118
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 50
• Issue: 1
• Pages: 24-38
• DOI: https://doi.org/10.1016/j.mathsocsci.2005.02.001
• Keywords: Coalitions, Risk sharing, Brownian motion, Optimal stopping.
• Public URL: https://durham-repository.worktribe.com/output/1538510