Contracts and Insurance Group Formation by Myopic Players

E.A. Lazarova, P.E.M. Borm, S. van Velzen

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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.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages16
Volume2005-89
Publication statusPublished - 2005

Publication series

NameCentER Discussion Paper
Volume2005-89

Keywords

  • stability
  • contracts
  • group formation

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