Cooperation in risk-sharing agreements

Francesca Barigozzi, Renaud Bourlès (), Dominique HENRIET and Giuseppe Pignataro ()

Working Papers from Dipartimento Scienze Economiche, Universita' di Bologna

Abstract: We analyze participating policies when policyholders choose a self-insurance measure, that is an action decreasing the size of any loss occurring. We consider both cooperative and noncooperative strategies in the action choice. We show that non-cooperative strategies lead to a Nash equilibrium with partial coverage where policyholders partially internalize the positive impact that self-insurance exerts on the premium. Cooperation, instead, leads to full internalization of the positive impact of the policyholders’ action and to full coverage. For an infinite size of the pool, the participating policy in the case of non-cooperation converges to the second-best non-participating policy; whereas, with cooperation, first-best efficiency is achieved. Finally, cooperation can be sustained as an equilibrium in a repeated interaction game for a sufficiently low size of pool.

JEL-codes: D82 I11 I18 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-ias
Date: 2011-06
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Related works:
Working Paper: Risk-sharing with self-insurance: the role of cooperation (2011)
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