Owners of stochastic assets can pool their endowments to smoothen and insure individual payoffs across outcomes and time. We explore, in such a setting, how contingent shadow prices on aggregate resources can be used for three purposes: first, to design mutual contracts for risk averse agents; second, to quantify the malfunctioning of such contracts when there are risk lovers (or scale economies); and third, to estimate reasonable premiums for insurance offered by outside agents.
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Length: 14 pages Date of creation: 2000 Date of revision: Handle: RePEc:fth:bereco:2299
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Y.M. Ermoliev & S.D. Flam, 2000.
"On Mutual Insurance,"
Working Papers
ir00002, International Institute for Applied Systems Analysis.
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Find related papers by JEL classification: C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty