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Empirica

, Volume 19, Issue 1, pp 19–35 | Cite as

Mutual insurance and reputational collateral

  • Hans Haller
Article

Abstract

A game between two infinitely lived economic agents is analysed. Each player is exposed to uncertainty with respect to individual endowments and maximises expected discounted utility. Contracts between agents are not enforceable. Players have no access to exogenous capital markets. Therefore they have incentives to provide some mutual insurance without contractual agreement. Autarky is always a subgame perfect Nash equilibrium outcome. Generically, with sufficiently high discount factors, there exists a subgame perfect trigger strategy equilibrium which both players prefer to autarky. When endowments are (perfectly) negatively correlated across players, full insurance plans can be implemented. When the individual endowment streams are Bernoulli processes and independent across players, partial insurance plans can be implemented.

Keywords

Nash Equilibrium Insurance Plan Strategy Equilibrium Discount Utility Bernoulli Process 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Zusammenfassung

Es wird ein Spiel zwischen zwei Wirtschaftssubjekten mit unendlicher Lebenszeit analysiert. Jeder der Spieler ist unsicher hinsichtlich der individuellen Erstausstattungen und maximiert seinen erwarteten diskontierten Nutzen. Verträge sind nicht durchsetzbar. Die Spieler haben keinen Zugang zu exogenen Kapitalmärkten. Deshalb haben sie einen Anreiz, sich gegenseitig zu versichern, selbst ohne vertragliche Vereinbarungen. Autarkie ist immer ein teilspielperfektes Gleichgewichtsergebnis. Generisch — mit hinreichend großen Diskontfaktoren — existiert ein teilspielperfektes Gleichgewicht, das beide Spieler der Autarkie vorziehen. Falls (vollständig) negative Korrelation zwischen den Erstausstattungen der zwei Spieler besteht, können Vollversicherungspläne implementiert werden. Falls Unabhängigkeit zwischen den Erstausstattungen der zwei Spieler besteht und jede der individuellen Erstausstattungen einem Bernoulli-Prozeß folgt, können Teilversicherungspläne implementiert werden.

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Copyright information

© Gustav Fischer 1992

Authors and Affiliations

  • Hans Haller
    • 1
  1. 1.Department of EconomicsVirginia Polytechnic Institute and State UniversityBlacksburgU. S. A.

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