Journal article
Pareto-efficient risk sharing in centralized insurance markets with application to flood risk
The Journal of risk and insurance, Vol.91(2), pp.449-488
06/2024
DOI: 10.1111/jori.12468
Abstract
Centralized insurance can be found in both the private and public sectors. This paper provides a microeconomic study of the risk-sharing mechanisms in these markets, where multiple policyholders interact with a centralized monopolistic insurer. With minimal assumptions on the risk preferences of the market participants, we characterize Pareto optimality in terms of the agents' risk positions and their assessment of the likelihoods associated with their loss tail events. We relate Pareto efficiency in this market to a naturally associated cooperative game. Based on our theoretical results, we then consider a model of flood insurance coverage via an illustrative example. The lessons drawn from our theoretical results and this example lead to important policy implications for the existing National Flood Insurance Program in the United States.
Details
- Title: Subtitle
- Pareto-efficient risk sharing in centralized insurance markets with application to flood risk
- Creators
- Tim J. Boonen - University of Hong KongWing Fung Chong - Heriot-Watt UniversityMario Ghossoub - University of Waterloo
- Resource Type
- Journal article
- Publication Details
- The Journal of risk and insurance, Vol.91(2), pp.449-488
- DOI
- 10.1111/jori.12468
- ISSN
- 0022-4367
- eISSN
- 1539-6975
- Publisher
- Wiley
- Number of pages
- 40
- Grant note
- 2018-03961 / Natural Sciences and Engineering Research Council of Canada; Natural Sciences and Engineering Research Council of Canada (NSERC); CGIAR Natural Sciences and Engineering Research Council of Canada (NSERC)
- Language
- English
- Date published
- 06/2024
- Academic Unit
- Statistics and Actuarial Science
- Record Identifier
- 9985179850502771
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