Heterogeneity and the formation of risk - sharing coalitions
Fernando Jaramillo (),
Hubert Kempf () and
Fabien Moizeau ()
Documentos de Trabajo from Universidad del Rosario
Abstract: We offer a new explanation of partial risk sharing based on coalition formation and segmentation of society in a risky environment, without assuming limited commitment and imperfect information. Heterogenous individuals in a society freely choose with whom they will share risk A partition belonging to the core of the membership game obtains. Perfect risk sharing does not necessarily arise. Focusing on mutual insurance rule and assuming that individuals only differ with respect to risk, we show that the core partition is homophily-based. The distribution of risk affects the number and size of these coalitions. Individuals may pay a lower risk premium in riskier societies. A higher heterogeneity in risk leads to a lower degree of risk sharing. We discuss how the endogenous partition of society into risk-sharing coalitions may shed light on empirical evidence on partial risk sharing. The case of heterogenous risk aversion leads to similar results.
Keywords: Risk Sharing; Group Membership; Social Segmentation (search for similar items in EconPapers)
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Journal Article: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the formation of risk-sharing coalitions (2015)
Working Paper: Heterogeneity and the Formation of Risk-Sharing Coalitions (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:011013
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