IDEAS home Printed from https://ideas.repec.org/p/upf/upfgen/518.html
   My bibliography  Save this paper

La Crema: A case study of mutual fire insurance

Author

Listed:
  • Antonio Cabrales
  • Antoni Calvó
  • Matthew O. Jackson

Abstract

We analyze a mutual fire insurance mechanism used in Andorra, which is called La Crema in the local language. This mechanism relies on households' announced property values to determine how much a household is reimbursed in the case of a fire and how payments are apportioned among other households. The only Pareto eficient allocation reachable through the mechanism requires that all households honestly report the true value of their property. However, such honest reporting is not an equilibrium except in the extreme case where the property values are identical for all households. Nevertheless, as the size of the society becomes large, the benefits from deviating from truthful reporting vanish, and all of the non-degenerate equilibria of the mechanism are nearly truthful and approximately Pareto efficient.

Suggested Citation

  • 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.
  • Handle: RePEc:upf:upfgen:518
    as

    Download full text from publisher

    File URL: https://econ-papers.upf.edu/papers/518.pdf
    File Function: Whole Paper
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Besley, Timothy & Coate, Stephen & Loury, Glenn, 1993. "The Economics of Rotating Savings and Credit Associations," American Economic Review, American Economic Association, vol. 83(4), pages 792-810, September.
    2. Gulley, O. David & Scott, Frank A. Jr., 1989. "Lottery Effects on Pari-Mutuel Tax Revenues," National Tax Journal, National Tax Association, vol. 42(1), pages 89-93, March.
    3. Timothy Besley & Stephen Coate & Glenn Loury, 1994. "Rotating Savings and Credit Associations, Credit Markets and Efficiency," Review of Economic Studies, Oxford University Press, vol. 61(4), pages 701-719.
    4. Gulley, O. David & Scott, Frank A. Jr., 1989. "Lottery Effects on Pari-Mutuel Tax Revenues," National Tax Journal, National Tax Association;National Tax Journal, vol. 42(1), pages 89-93, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Daniel J. Clarke, 2011. "Reinsuring the Poor: Group Microinsurance Design and Costly State Verification," Economics Series Working Papers 573, University of Oxford, Department of Economics.
    2. Shimoji, Makoto & Schweinzer, Paul, 2015. "Implementation without incentive compatibility: Two stories with partially informed planners," Games and Economic Behavior, Elsevier, vol. 91(C), pages 258-267.
    3. Catarina Goulão & Luca Panaccione, 2015. "Pooling promises with moral hazard," Economics Bulletin, AccessEcon, vol. 35(1), pages 460-465.
    4. Kaivan Munshi & Mark Rosenzweig, 2013. "Networks, Commitment, and Competence: Caste in Indian Local Politics," NBER Working Papers 19197, National Bureau of Economic Research, Inc.
    5. Assefa, Tsion Taye & Meuwissen, Miranda P.M. & Van Asseldonk, Marcel A.P.M., "undated". "Mutual insurance companies as a tool for farmer income stabilization: performance and prospects in the CAP," 126th Seminar, June 27-29, 2012, Capri, Italy 125991, European Association of Agricultural Economists.
    6. Lanny Arvan & David Nickerson, 2006. "Private Investment, Public Aid and Endogenous Divergence in the Evolution of Urban Neighborhoods," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 83-100, February.
    7. Roberto Serrano, 2003. "The Theory of Implementation of Social Choice Rules," Working Papers 2003-19, Brown University, Department of Economics.

    More about this item

    Keywords

    Insurance; contract theory; mechanism design; truthful revelation;

    JEL classification:

    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D64 - Microeconomics - - Welfare Economics - - - Altruism; Philanthropy; Intergenerational Transfers
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:upf:upfgen:518. 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: (). General contact details of provider: http://www.econ.upf.edu/ .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.