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Reinsuring the Poor: Group Microinsurance Design and Costly State Verification

  • Daniel J. Clarke

This paper analyses collusion-proof multilateral insurance contracts between a risk neutral insurer and multiple risk averse agents in an environment of asymmetric costly state verification.� Optimal contracts involve the group of agents pooling uncertainty and the insurer acting as reinsurer to the group, auditing and paying a claim only when the group or a sub-group has incurred a large enough aggregate loss.� We interpret our models as providing support for insurance contracts between insurance providers, such as microinsurers or governments, and groups of individuals who have access to cheap information about each other, such as extended families or members of close-knit communities.� Such formal contracts complement, and could even crowd in, cheap nonmarket insurance arrangements.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper573.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 573.

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Date of creation: 01 Oct 2011
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Handle: RePEc:oxf:wpaper:573
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Web page: http://www.economics.ox.ac.uk/
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  1. Christian Gollier & Harris Schlesinger, 1996. "Arrow's theorem on the optimality of deductibles: A stochastic dominance approach (*)," Economic Theory, Springer, vol. 7(2), pages 359-363.
  2. Fagart, M.-C. & Picard, P., 1998. "Optimal Insurance Under Random Auditing," Papers 9808, Paris X - Nanterre, U.F.R. de Sc. Ec. Gest. Maths Infor..
  3. Ethan Ligon & Jonathan P. Thomas & Tim Worrall, 2002. "Informal Insurance Arrangements with Limited Commitment: Theory and Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 209-244.
  4. Laffont, Jean-Jacques & Martimort, David, 1998. "Mechanism Design with Collusion and Correlation," IDEI Working Papers 81, Institut d'Économie Industrielle (IDEI), Toulouse.
  5. Marcel Fafchamps & Susan Lund, 2000. "Risk-Sharing Networks in Rural Philippines," Economics Series Working Papers 10, University of Oxford, Department of Economics.
  6. Ghatak, Maitreesh & Guinnane, Timothy W., 1999. "The economics of lending with joint liability: theory and practice," Journal of Development Economics, Elsevier, vol. 60(1), pages 195-228, October.
  7. Olivier Mahul, 1999. "Optimum Area Yield Crop Insurance," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 75-82.
  8. Dercon, Stefan & De Weerdt, Joachim & Bold, Tessa & Pankhurst, Alula, 2006. "Group-based funeral insurance in Ethiopia and Tanzania," World Development, Elsevier, vol. 34(4), pages 685-703, April.
  9. Antonio Cabrales & Antoni Calvó & Matthew O. Jackson, 2000. "La Crema: A case study of mutual fire insurance," Economics Working Papers 518, Department of Economics and Business, Universitat Pompeu Fabra.
  10. Daniel J. Clarke, 2011. "A Theory of Rational Demand for Index Insurance," Economics Series Working Papers 572, University of Oxford, Department of Economics.
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