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Toward a Theory of Reinsurance and Retrocession

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Abstract

There is a natural tradeoff between the benefits of increasing the number of competitors in an insurance market and the drawback to the weakening of the law of large numbers due to the diminishing of average reserves. In this investigation we consider the possibility for optimal layers of reinsurance and retrocession in the design of the insurance industry. A general question which may be asked of all financial institutions is what factors limit the number of layers of paper which can be constructed?

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  • Michael R. Powers & Martin Shubik, 1999. "Toward a Theory of Reinsurance and Retrocession," Cowles Foundation Discussion Papers 1227, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1227
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    1. Michael Powers & Martin Shubik & Shun Yao, 1998. "Insurance market games: Scale effects and public policy," Journal of Economics, Springer, vol. 67(2), pages 109-134, June.
    2. Baton, Bernard & Lemaire, Jean, 1981. "The Bargaining Set of a Reinsurance Market," ASTIN Bulletin, Cambridge University Press, vol. 12(2), pages 101-114, December.
    3. M. Moshe Porat & Michael R. Powers, 1999. "What Is “Insurance”? Lessons From The Captive Insurance Tax Controversy," Risk Management and Insurance Review, American Risk and Insurance Association, vol. 2(2), pages 72-80, January.
    4. Dubey, Pradeep & Shubik, Martin, 1978. "A theory of money and financial institutions. 28. The non-cooperative equilibria of a closed trading economy with market supply and bidding strategies," Journal of Economic Theory, Elsevier, vol. 17(1), pages 1-20, February.
    5. Arrow, Kenneth J, 1996. "The Theory of Risk-Bearing: Small and Great Risks," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 103-111, May.
    6. Baton, Bernard & Lemaire, Jean, 1981. "The Core of a Reinsurance Market," ASTIN Bulletin, Cambridge University Press, vol. 12(1), pages 57-71, June.
    7. John Geanakoplos & Martin Shubik, 1989. "The Capital Asset Pricing Model as a General Equilibrium with Incomplete Markets," Cowles Foundation Discussion Papers 913, Cowles Foundation for Research in Economics, Yale University.
    8. Powers, Michael R. & Shubik, Martin, 1998. "On the tradeoff between the law of large numbers and oligopoly in insurance," Insurance: Mathematics and Economics, Elsevier, vol. 23(2), pages 141-156, November.
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    Cited by:

    1. Bäuerle, Nicole & Glauner, Alexander, 2018. "Optimal risk allocation in reinsurance networks," Insurance: Mathematics and Economics, Elsevier, vol. 82(C), pages 37-47.
    2. John William Hatfield & Scott Duke Kominers & Alexandru Nichifor & Michael Ostrovsky & Alexander Westkamp, 2013. "Stability and Competitive Equilibrium in Trading Networks," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 966-1005.

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    More about this item

    Keywords

    Reinsurance; retrocession; strategic market game;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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