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A Note on a "Square-Root Rule" for Reinsurance

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Author Info
Michael R. Powers (Temple University)
Martin Shubik () (Cowles Foundation, Yale University)

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Abstract

In previous work, the current authors derived a mathematical expression for the optimal (or "saturation") number of reinsurers for a given number of primary insurers (see Powers and Shubik, 2001). In the current paper, we show analytically that, for large numbers of primary insurers, this mathematical expression provides a "square-root rule"; i.e., the optimal number of reinsurers in a market is given asymptotically by the square root of the total number of primary insurers. We note further that an analogous “fourth-root rule” applies to markets for retrocession (the reinsurance of reinsurance).

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File URL: http://cowles.econ.yale.edu/P/cd/d15a/d1521.pdf
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Publisher Info
Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1521.

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Length: 8 pages
Date of creation: Jun 2005
Date of revision:
Handle: RePEc:cwl:cwldpp:1521

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Postal: Cowles Foundation, Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Related research
Keywords: Primary insurance; Reinsurance; Market size; Square-root rule;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies

This paper has been announced in the following NEP Reports:

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This page was last updated on 2009-11-12.

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