Pareto-optimal Contracts in an Insurance Market

A.Y. Golubin

ASTIN Bulletin, 2005, vol. 35, issue 2, 363-378

Abstract: In distinction to the Borch’s model of a reinsurance market, this paper treats the problem of optimal risk exchange in an insurance market where treaties are allowed between the insurer and each insured only, not among insureds themselves. A characterization of the Pareto-optimal contract is found. It is shown that the indemnity function in the contract is of a coinsurance kind. We also present a way of finding Pareto-optimal contracts under individual rationality constraints. The obtained results are compared with those of the known model of risk exchange in a reinsurance market.

Date: 2005
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