Contracts and Insurance Group Formation by Myopic Players
Emiliya A. Lazarova
Queen's University Belfast
Tilburg University - Center for Economic Research (CentER); Tilburg University - Department of Econometrics & Operations Research
Bas Van Velzen
affiliation not provided to SSRN
CentER Discussion Paper Series No. 2005-89
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, D02working papers series
Date posted: September 15, 2005
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