Intra-group Risk Sharing Under Financial Fairness

Jaroslav Pazdera, Hans Schumacher, Bas Werker

Research output: Working paperDiscussion paperOther research output

Abstract

We examine intra-group risk sharing under the assumption that prices are given
exogenously. Two situations are considered: one in which the entities that constitute the group choose to trade only among each other, and one in which the entities have limited access to the external market. In the first situation we prove that, if agents are expected utility maximizers, there is a unique risk-sharing rule that preserves value according to the exogenous rule and that is Pareto optimal among feasible allocations. This provides an extension of a result by Balasko (1979). In the second situation we give necessary and sufficient conditions for the internal market to be completable in the sense that all agents can reach all positions, subject only to the budget constraint, by combining their own partial access to the external market with internal trades under the given pricing rule.
Original languageEnglish
Place of PublicationTilburg
PublisherNETSPAR
Number of pages38
Publication statusPublished - May 2013

Publication series

NameNETSPAR Discussion Paper
Volume05/2013-072

Fingerprint

Fairness
Risk sharing
Expected utility
Pricing rules
Internal market
Sharing rule
Budget constraint

Keywords

  • fixed-price equilibrium
  • internal trading
  • risk sharing
  • Pareto efficient allocations

Cite this

Pazdera, J., Schumacher, H., & Werker, B. (2013). Intra-group Risk Sharing Under Financial Fairness. (NETSPAR Discussion Paper; Vol. 05/2013-072). Tilburg: NETSPAR.
Pazdera, Jaroslav ; Schumacher, Hans ; Werker, Bas. / Intra-group Risk Sharing Under Financial Fairness. Tilburg : NETSPAR, 2013. (NETSPAR Discussion Paper).
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Pazdera, J, Schumacher, H & Werker, B 2013 'Intra-group Risk Sharing Under Financial Fairness' NETSPAR Discussion Paper, vol. 05/2013-072, NETSPAR, Tilburg.

Intra-group Risk Sharing Under Financial Fairness. / Pazdera, Jaroslav; Schumacher, Hans; Werker, Bas.

Tilburg : NETSPAR, 2013. (NETSPAR Discussion Paper; Vol. 05/2013-072).

Research output: Working paperDiscussion paperOther research output

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Pazdera J, Schumacher H, Werker B. Intra-group Risk Sharing Under Financial Fairness. Tilburg: NETSPAR. 2013 May. (NETSPAR Discussion Paper).