Risk-sharing networks and farsighted stability
AbstractEvidence suggests that in developing countries, agents rely on mutual insurance agreements to deal with income or expenditure shocks. This paper analyzes which risk-sharing networks can be sustained in the long run when individuals are far- sighted, in the sense that they are able to forecast how other agents would react to their choice of insurance partners. In particular, we study whether the farsightedness of the agents leads to a reduction of the tension between stability and efficiency that arises when individuals are myopic. We find that for extreme values of the cost of establishing a mutual insurance agreement, myopic and farsighted agents form the same risk-sharing networks. For intermediate costs, farsighted agents form efficient networks while myopic agents don't.
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Bibliographic InfoPaper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2011014.
Date of creation: 01 Feb 2011
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risk-sharing; networks; farsighted agents; stability; efficiency;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-14 (All new papers)
- NEP-GTH-2011-05-14 (Game Theory)
- NEP-NET-2011-05-14 (Network Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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