Optimal risk sharing with background risk

Scarsini, Marco; Dana, Rose-Anne

Scarsini, Marco; Dana, Rose-Anne (2005), Optimal risk sharing with background risk, Journal of Economic Theory, 133, 1, p. 152-176. http://dx.doi.org/10.1016/j.jet.2005.10.002

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Type

Article accepté pour publication ou publié

Date

2005

Journal name

Journal of Economic Theory

Volume

133

Number

Publisher

Elsevier

Pages

152-176

Abstract (EN)

This paper examines qualitative properties of efficient insurance contracts in the presence of background risk. In order to get results for all strictly risk-averse expected utility maximizers, the concept of “stochastic increasingness” is used. Different assumptions on the stochastic dependence between the insurable and uninsurable risk lead to different qualitative properties of the efficient contracts. The new results obtained under hypotheses of dependent risks are compared to classical results in the absence of background risk or to the case of independent risks. The theory is further generalized to nonexpected utility maximizers.

Subjects / Keywords

Efficient contracts; Stochastically increasing; Incomplete markets; Insurance

JEL

D52 - Incomplete Markets
G22 - Insurance; Insurance Companies; Actuarial Studies