Informal Insurance with Endogenous Group Size
We present a theory of endogenous formation of insurance groups which combines heterogeneity on agents' risk aversion under asymmetric information and lack of enforceability of contracts. Income sharing inside the group is decided by majority voting and the size of the group adjusts to this decision through participation constraints. At equilibrium, all group members agree on the same imperfect level of income sharing, which yields a constrained-efficient equilibrium. Comparative statics on the risk faced by the community provide interesting results. A mean preserving spread of income implies more income sharing and a larger group size. New members, and possibly even old members may be better o¤, while non-members are worse-o¤. These results have relevant policy implications.
|Date of creation:||May 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.fundp.ac.be/en/eco
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:nam:wpaper:1107. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marie-H�l�ne Mathieu)
If references are entirely missing, you can add them using this form.