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Contracts and Insurance Group Formation by Myopic Players

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  • Lazarova, E.A.
  • Borm, P.E.M.
  • Velzen, S. van

    (Tilburg University, Center for Economic Research)

Abstract

This paper employs a cooperative approach to insurance group formation problems.The insurance group formation is analyzed in terms of stability with respect to one-person deviations.Depending on the exact contractual setting, three stability concepts are proposed: individual, contractual and compensation stability.When we apply our general framework to the standard insurance setting of Rothschild and Stiglitz (1976), we find that, in each type of contractual setting, there are stable individually rational pooling outcomes while, on the contrary, individually rational separating outcomes are not stable.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2005-89.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:200589

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Related research

Keywords: stability; contracts; group formation;

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References

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  1. Gabrielle Demange & Roger Guesnerie, 2001. "On coalitional stability of anonymous interim mechanisms," Economic Theory, Springer, vol. 18(2), pages 367-389.
  2. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  3. John H. Boyd & Edward C. Prescott & Bruce D. Smith, 1988. "Organizations in Economic Analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 21(3), pages 477-91, August.
  4. Boyd, John H. & Prescott, Edward C., 1986. "Financial intermediary-coalitions," Journal of Economic Theory, Elsevier, vol. 38(2), pages 211-232, April.
  5. Kahn, C.M. & Mookherjee, D., 1991. "Coalition Proof Equilibrium in an Advese Selection Insurance Economy," University of Chicago - Economics Research Center 91-5, Chicago - Economics Research Center.
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