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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: UM - Le Mans Université

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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 coexistence 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 signi cant 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)
New Economics Papers: this item is included in nep-cbe, nep-ias and nep-upt
Date: 2015-12-14
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01243256
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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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