Axiomatic risk sharing and capital allocation

Tim J. Boonen and Maurice Koster

Insurance: Mathematics and Economics, 2025, vol. 121, issue C, 133-143

Abstract: We aim to share risky endowments among finitely many agents, subject to liquidity constraints. We axiomatically characterize baseline solutions, which use a baseline vector of fixed contributions and a rationing method. We propose a general fairness condition, that uniquely determines these fixed contributions. The fairness condition is flexible enough to allow for the use of any capital allocation rule. One rule stands out as a K-fair solution: the one implied by the constrained egalitarian rationing rule. It is the unique rule satisfying a lower bound on taking part of the risk, a composition property, and null consistency. Furthermore, we provide two more characterizations of this rule; one based on local symmetry and one based on minimax expected contributions under truncation.

Keywords: Risk management; Risk sharing; Rationing; Liability constraints; Capital allocation (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:121:y:2025:i:c:p:133-143

DOI: 10.1016/j.insmatheco.2025.01.005

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