Risk-sharing networks and farsighted stability

Gilles Grandjean

No 2011014, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: Evidence suggests that in developing countries, agents rely on mutual insurance agreements to deal with income or expenditure shocks. This paper analyzes which risk-sharing networks can be sustained in the long run when individuals are far- sighted, in the sense that they are able to forecast how other agents would react to their choice of insurance partners. In particular, we study whether the farsightedness of the agents leads to a reduction of the tension between stability and efficiency that arises when individuals are myopic. We find that for extreme values of the cost of establishing a mutual insurance agreement, myopic and farsighted agents form the same risk-sharing networks. For intermediate costs, farsighted agents form efficient networks while myopic agents don't.

Keywords: risk-sharing; networks; farsighted agents; stability; efficiency (search for similar items in EconPapers)
JEL-codes: C70 D85 O17 (search for similar items in EconPapers)
Date: 2011-02-01
New Economics Papers: this item is included in nep-gth and nep-net
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Journal Article: Risk-sharing networks and farsighted stability (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2011014

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