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Voluntary Contributions to a Mutual Insurance Pool

Louis Lévy-Garboua (), Claude Montmarquette (), Jonathan Vaksmann () and Marie Claire Villeval ()
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Jonathan Vaksmann: GAINS-TEPP, Université du Maine, Faculté de Droit et des Sciences Economiques Avenue O.Messiaen, 72085 Le Mans Cedex 9; and Centre d'Economie de la Sorbonne, Université Paris 1-Panthéon Sorbonne

No 1535, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We study mutual-aid games in which individuals choose to contribute to an informal mutual insurance pool. Individual coverage is determined by the aggregate level of contributions and a sharing rule. We analyze theoretically and experimentally the (ex ante) efficiency of equal and contribution-based coverage. The equal coverage mechanism leads to a unique no-insurance equilibrium while contribution-based coverage develops multiple equilibria and improves efficiency. Experimentally, the latter treatment reduces the amount of transfers from high contributors to low contributors and generates a "dual interior equilibrium". That dual equilibrium is consistent with the co-existence of different prior norms which correspond to notable equilibria derived in the theory. This results in asymmetric outcomes with a majority of high contributors less than fully reimbursing the global losses and a significant minority of low contributors less than fully defecting. Such behavioral heterogeneity may be attributed to risk attitudes (risk tolerance vs risk aversion) which is natural in a risky context.

Keywords: Mutual insurance pool; voluntary contribution mechanism; equal coverage; contribution-based coverage; heterogeneity of risk attitudes; experiment (search for similar items in EconPapers)
JEL-codes: I18 H21 H41 C72 C91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-ias
Date: 2015
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ftp://ftp.gate.cnrs.fr/RePEc/2015/1535.pdf (application/pdf)

Related works:
Journal Article: Voluntary Contributions to a Mutual Insurance Pool (2017) Downloads
Working Paper: Voluntary Contributions to a Mutual Insurance Pool (2017) Downloads
Working Paper: Voluntary Contributions to a Mutual Insurance Pool (2016)
Working Paper: Voluntary Contributions to a Mutual Insurance Pool (2015) Downloads
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