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Optimal Risk-Sharing Rules in Network-based Decentralized Insurance

Author

Listed:
  • Heather N. Fogarty
  • Sooie-Hoe Loke
  • Nicholas F. Marshall
  • Enrique A. Thomann

Abstract

This paper studies decentralized risk-sharing on networks. In particular, we consider a model where agents are nodes in a given network structure. Agents directly connected by edges in the network are referred to as friends. We study actuarially fair risk-sharing under the assumption that only friends can share risk, and we characterize the optimal signed linear risk-sharing rule in this network setting. Subsequently, we consider a special case of this model where all the friends of an agent take on an equal share of the agent's risk, and establish a connection to the graph Laplacian. Our results are illustrated with several examples.

Suggested Citation

  • Heather N. Fogarty & Sooie-Hoe Loke & Nicholas F. Marshall & Enrique A. Thomann, 2026. "Optimal Risk-Sharing Rules in Network-based Decentralized Insurance," Papers 2602.05155, arXiv.org.
    • Handle: RePEc:arx:papers:2602.05155
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    File URL: http://arxiv.org/pdf/2602.05155
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