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Risk-sharing and probabilistic network structure


  • Marco Pelliccia

    (Department of Economics, Mathematics & Statistics, Birkbeck)


This paper studies the impact of a probabilistic risk-sharing network structure on the optimal portfolio composition. We show that, even assuming identical agents, we are able to differentiate their optimal risk-choice once we assume the link-structure defining their relationship probabilistic. In particular, the final agent's portfolio composition is function of his location in the network. If we assume positive asset-correlation coefficients, the relative location of a player in the graph influences his risk-behaviour as much as those of his direct and indirect partners in a not-straightforward way. We analyse also two potential "centrality measures" able to select the key-player in the risk-sharing network. The findings may help to select the "central" agent in a risk-sharing community and to forecast the risk-exposure of the players. Finally, this paper may explain natural differences between identical rational agents' choices emerging in a probabilistic network setup.

Suggested Citation

  • Marco Pelliccia, 2012. "Risk-sharing and probabilistic network structure," Birkbeck Working Papers in Economics and Finance 1214, Birkbeck, Department of Economics, Mathematics & Statistics.
  • Handle: RePEc:bbk:bbkefp:1214

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    References listed on IDEAS

    1. De Weerdt, Joachim & Dercon, Stefan, 2006. "Risk-sharing networks and insurance against illness," Journal of Development Economics, Elsevier, vol. 81(2), pages 337-356, December.
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    6. Bramoullé, Yann & Kranton, Rachel, 2007. "Risk-sharing networks," Journal of Economic Behavior & Organization, Elsevier, vol. 64(3-4), pages 275-294.
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    Cited by:

    1. 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.

    More about this item


    informal insurance; risk-sharing; network;

    JEL classification:

    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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