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Pareto Optimality and Equilibrium in an Insurance Market

Published online by Cambridge University Press:  17 April 2015

Alexey Y. Golubin
Alexey Y. Golubin*
Affiliation:
Russian Academy of Sciences, Design Information Technologies Center, Marshala Zhukova Street, 30-A Odintsovo, Moscow region, 143000 Russia, E-Mail: io@miem.edu.ru info@ditc.ras.ru
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Abstract

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The concept of economic equilibrium under uncertainty is applied to a model of insurance market where, in distinction to the classic Borch’s model of a reinsurance market, risk exchanges are allowed between the insurer and each insured only, not among insureds themselves. Conditions characterizing an equilibrium are found. A variant of the conditions, based on the Pareto optimality notion and involving risk aversion functions of the agents, is derived. An existence theorem is proved. Computation of the market premiums and optimal indemnities is illustrated by an example with exponential utility functions.

Keywords

Insurancepremiumindemnity functionPareto optimalityequilibrium

Information

Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 38 , Issue 2 , November 2008 , pp. 441 - 459
Copyright
Copyright © ASTIN Bulletin 2008

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