Optimal Risk-Sharing Rules in Network-based Decentralized Insurance

Heather N. Fogarty, Sooie-Hoe Loke, Nicholas F. Marshall and Enrique A. Thomann

Papers from arXiv.org

Abstract: This paper studies decentralized risk-sharing on networks. In particular, we consider a model where agents are nodes in a given network structure. Agents directly connected by edges in the network are referred to as friends. We study actuarially fair risk-sharing under the assumption that only friends can share risk, and we characterize the optimal signed linear risk-sharing rule in this network setting. Subsequently, we consider a special case of this model where all the friends of an agent take on an equal share of the agent's risk, and establish a connection to the graph Laplacian. Our results are illustrated with several examples.

Date: 2026-02
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