Mutual Insurance, Individual Savings and Limited Commitment

Ethan Ligon (), Jonathan Thomas () and Tim Worrall ()

Review of Economic Dynamics, 2000, vol. 3, issue 2, pages 216-246

Abstract: We examine a dynamic model of mutual insurance when households can also engage in self insurance by storage. We assume that there is no enforcement mechanism, so that any insurance is informal, and must be self-enforcing. We show that consumption allocations satisfy a modified Euler condition and that an enhanced storage technology can either improve or diminish welfare. Furthermore we show that the ex ante transfers introduced into dynamic informal insurance models recently by Gauthier, Poitevin, and Gonzales (1997) are only used here in the first period, with the role of ex ante transfers being replaced by differential individual storage. (Copyright: Elsevier)

Date: 2000
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Working Paper: Mutual Insurance, Individual Savings and Limited Commitment (1998)
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