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Contracts and Insurance Group Formation by Myopic PlayersEmiliya A. LazarovaQueen's University Belfast Peter BormTilburg University - Center for Economic Research (CentER); Tilburg University - Department of Econometrics & Operations Research Bas Van Velzenaffiliation not provided to SSRN July 2005 CentER Discussion Paper Series No. 2005-89 Abstract: This paper employs a cooperative approach to insurance group formation problems. The insurance group formation is analyzed in terms of stability with respect to one-person deviations. Depending on the exact contractual setting, three stability concepts are proposed: individual, contractual and compensation stability. When we apply our general framework to the standard insurance setting of Rothschild and Stiglitz (1976), we find that, in each type of contractual setting, there are stable individually rational pooling outcomes while, on the contrary, individually rational separating outcomes are not stable.
Number of Pages in PDF File: 15 Keywords: stability, contracts, group formation JEL Classification: C71, D02 working papers seriesDate posted: September 15, 2005Suggested CitationContact Information
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