Optimal risk sharing with background risk
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
TypeArticle accepté pour publication ou publié
Journal nameJournal of Economic Theory
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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 / KeywordsEfficient contracts; Stochastically increasing; Incomplete markets; Insurance
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