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Heterogeneity and the formation of risk-sharing coalitions

Author

Listed:
  • Fernando Jaramillo

    (Universidad del Rosario - Facultad de Economia)

  • Hubert Kempf

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Fabien Moizeau

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

We study the relationship between the distribution of individuals' attributes over the pop-ulation and the extent of risk sharing in a risky environment. We consider a society where individuals voluntarily form risk-sharing groups in the absence of financial markets. We obtain a partition of society into distinct coalitions leading to partial risk sharing. When individuals differ only with respect to risk, the partition is homophily-based: the less risky agents congreg-ate together and reject more risky ones into other coalitions. The distribution of risk affects the number and size of these coalitions. It turns out that individuals may pay a lower risk premium in more risky societies. We show that a higher heterogeneity in risk leads to a lower degree of partial risk sharing. The case of heterogenous risk aversion generates similar results. The empirical evidence on partial risk sharing can be understood when the endogenous partition of society into risk-sharing coalitions is taken into account.

Suggested Citation

  • Fernando Jaramillo & Hubert Kempf & Fabien Moizeau, 2015. "Heterogeneity and the formation of risk-sharing coalitions," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-01075648, HAL.
  • Handle: RePEc:hal:pseose:halshs-01075648
    DOI: 10.1016/j.jdeveco.2014.09.003
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01075648
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    Cited by:

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    2. Gabrielle Demange, 2017. "The stability of group formation," Revue d'économie politique, Dalloz, vol. 127(4), pages 495-516.
    3. Quynh Hoang & Laure Pasquier-Doumer & Camille Saint-Macary, 2018. "Ethnicity and risk sharing network formation: Evidence from rural Vietnam," WIDER Working Paper Series 134, World Institute for Development Economic Research (UNU-WIDER).
    4. Renaud Bourlès & Juliette Rouchier, 2012. "Evolving Informal Risk-Sharing Cooperatives and Other-Regarding Preferences," Working Papers halshs-00793706, HAL.
    5. Quynh Hoang & Laure Pasquier-Doumer & Camille Saint-Macary, 2018. "Ethnicity and risk sharing network formation: Evidence from rural Vietnam," WIDER Working Paper Series wp-2018-134, World Institute for Development Economic Research (UNU-WIDER).
    6. Quynh Hoang & Camille Saint Macary & Laure Pasquier-Doumer, 2021. "Ethnicity and risk sharing network formation: Evidence from rural Viet Nam," Working Papers hal-03361332, HAL.
    7. Gao Wayne Yuan & Moon Eunyoung, 2016. "Informal Insurance Networks," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 16(2), pages 455-484, June.
    8. Nicholas Sabin, 2023. "Choosing partners: selection priorities of joint liability group leaders," Empirical Economics, Springer, vol. 64(1), pages 323-348, January.
    9. Li, Sanxi & Sun, Hailin & Wang, Tong & Yu, Jun, 2016. "Assortative matching and risk sharing," Journal of Economic Theory, Elsevier, vol. 163(C), pages 248-275.
    10. Glenn W. Harrison & Jia Min Ng, 2019. "Behavioral insurance and economic theory: A literature review," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 22(2), pages 133-182, July.
    11. Hoang & Laure Pasquier-Doumer & Camille Saint-Macary, 2018. "Ethnicity and risk sharing network formation: Evidence from rural Viet Nam," Working Papers DT/2018/15, DIAL (Développement, Institutions et Mondialisation).

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    More about this item

    Keywords

    Risk Sharing; Group Membership;

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • D3 - Microeconomics - - Distribution
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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