The Mutual Indurance Cooperative as a Game

Hong Wu
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Hong Wu: Department of Economics, University of G÷teborg, G÷teborg, Sweden

Homo Oeconomicus, 2001, vol. 17, 515-538

Abstract: This paper uses game theory to analyze mutual cooperatives. Whether or not there are risk premiums is assumed to distinguish mutual cooperatives from insurance companies. In mutual cooperatives, it is assumed that there are no risk premiums involved, which means that no individuals accept any risk premiums from other individuals for bearing their risks, except to have their own risks born by those others. It is found that the mutual game has a nonempty core. Thus, even without risk premiums, stable mutual sharing is still possible. However, the Pareto-efficient allocation may not be in the core. This is in contrast with the insurance game analyzed by Suijs et al. (1998), which concluded that the Pareto-efficient allocation of the total loss in the insurance game belongs to the core, when insurance premiums are calculated according to the zero-utility principle. A core allocation in the mutual game requires information about who experiences the losses, as opposed to the Pareto-efficient allocation, which does not.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:hom:homoec:v:17:y:2001:p:515-538

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