Mutual Insurance in the Village and Beyond

Clive Bell, Hans Gersbach and Hans Haller ()
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Hans Haller: Virginia Tech

No 17406, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: When formal insurance is unavailable, mutual insurance among households can serve as an alternative. This paper analyzes a game between economic agents facing uncertainty and maximizing discounted utility without enforceable contracts or access to capital markets. While autarky is always a possible outcome, under high discount factors, a mutually beneficial trigger-strategy equilibrium can be achieved. Full insurance is possible with strongly negatively correlated endowments, while partial insurance is generally feasible. The analysis highlights environments wherein varying levels of insurance can emerge, with applications to real-world institutional contexts.

Keywords: mutual insurance; risk sharing; group formation (search for similar items in EconPapers)
JEL-codes: C72 C73 D80 G20 O11 (search for similar items in EconPapers)
Date: 2024-10
New Economics Papers: this item is included in nep-fdg, nep-gth and nep-upt
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