A Welfare Analysis of Capital Insurance

Ekaterina Panttser and Weidong Tian
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Ekaterina Panttser: Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA
Weidong Tian: Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA

Risks, 2013, vol. 1, issue 2, 1-24

Abstract: This paper presents a welfare analysis of several capital insurance programs in a rational expectation equilibrium setting. We first explicitly characterize the equilibrium of each capital insurance program. Then, we demonstrate that a capital insurance program based on aggregate loss is better than classical insurance, when big financial institutions have similar expected loss exposures. By contrast, classical insurance is more desirable when the bank’s individual risk is consistent with the expected loss in a precise way. Our analysis shows that a capital insurance program is a useful tool to hedge systemic risk from the regulatory perspective.

Keywords: capital insurance; welfare; equilibrium (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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