Mutual Insurance Networks in Communities
GATE - Groupe d’Analyse et de Théorie Économique Lyon - St Étienne Working Paper No. 1234
32 Pages Posted: 10 Jan 2013
Date Written: December 1, 2012
We study the formation of mutual insurance networks in a model where every agent who obtains more resources gives a fixed amount of resources to all agents who have obtained less resources. The low resource agent must be directly linked to the high resource agent to receive this transfer. We identify the pairwise stable networks and efficient networks. Then, we extend our model to situations where agents differ in their generosity with regard to the transfer scheme. We show that there exist conditions under which in a pairwise stable network agents who provide the same level of transfers are linked together, while there are no links between agents who provide high transfers and agents who provide low transfers.
Keywords: Mutual insurance networks, Pairwise stable networks, Efficient networks
JEL Classification: C72, D81, D8
Suggested Citation: Suggested Citation