Risk Exchange Under EUUP

28 Pages Posted: 16 Jan 2018

See all articles by Hideki Iwaki

Hideki Iwaki

Kyoto Sangyo University - Faculty of Business Administration

Date Written: January 16, 2018


This study considers a pure exchange economy with insurance against ambiguous loss. Ambiguity preferences are represented by the expected utility with uncertainty (EUUP) theory advocated by Izhakian (2017). The economic premium principle of Buhlmann (1980) is generalized under EUUP. We also perform some comparative statics numerically and show that insurance transactions occur and demand for insurance are not comonotonic due to the difference in the degree of ambiguity aversion even if all of the agents in the economy are ambiguity averse or ambiguity loving. These results bring out distinctly different conclusion of Tsanakas and Christofides (2006), who have extended the Bühlmann’s economic premium principle under the max-min expected utility (MEU) and insisted that insurance demand is comonotonic.

Keywords: Ambiguity, Economic premium principle, Equilibrium, EUUP

JEL Classification: G22, D81, D01, D41

Suggested Citation

Iwaki, Hideki, Risk Exchange Under EUUP (January 16, 2018). Available at SSRN: https://ssrn.com/abstract=3102816 or http://dx.doi.org/10.2139/ssrn.3102816

Hideki Iwaki (Contact Author)

Kyoto Sangyo University - Faculty of Business Administration ( email )

Motoyama, Kamigamo, Kita-Ku
Kyoto, 6038555
+81-75-705-1711 (Phone)
+81-75-705-1711 (Fax)

HOME PAGE: http://www.cc.kyoto-su.ac.jp/~iwaki/index-e.html

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