Group formation in risk-sharing arrangements

Garance Genicot, Debraj Ray

    Research output: Contribution to journalArticle

    Abstract

    We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. However, such deviations must be credible, in the sense that the subgroup must pass exactly the same test that we apply to the entire group; it must itself employ some self-enforcing risk-sharing agreement. We observe that the stability of subgroups is inimical to the stability of the group as a whole. Two surprising consequences of this analysis are that stable groups have (uniformly) bounded size, a result in sharp contrast to the individual-deviation problem, and that the degree of risk-sharing in a community is generally non-monotonic in the level of uncertainty or need for insurance in the community.

    Original languageEnglish (US)
    Pages (from-to)87-113
    Number of pages27
    JournalReview of Economic Studies
    Volume70
    Issue number1
    DOIs
    StatePublished - Jan 2003

    Fingerprint

    Deviation
    Risk sharing
    Group formation
    Insurance
    Informal insurance
    Large groups
    Uncertainty

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Group formation in risk-sharing arrangements. / Genicot, Garance; Ray, Debraj.

    In: Review of Economic Studies, Vol. 70, No. 1, 01.2003, p. 87-113.

    Research output: Contribution to journalArticle

    Genicot, Garance ; Ray, Debraj. / Group formation in risk-sharing arrangements. In: Review of Economic Studies. 2003 ; Vol. 70, No. 1. pp. 87-113.
    @article{0f5be8e9f8994b5198da5374d794baf5,
    title = "Group formation in risk-sharing arrangements",
    abstract = "We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. However, such deviations must be credible, in the sense that the subgroup must pass exactly the same test that we apply to the entire group; it must itself employ some self-enforcing risk-sharing agreement. We observe that the stability of subgroups is inimical to the stability of the group as a whole. Two surprising consequences of this analysis are that stable groups have (uniformly) bounded size, a result in sharp contrast to the individual-deviation problem, and that the degree of risk-sharing in a community is generally non-monotonic in the level of uncertainty or need for insurance in the community.",
    author = "Garance Genicot and Debraj Ray",
    year = "2003",
    month = "1",
    doi = "10.1111/1467-937X.00238",
    language = "English (US)",
    volume = "70",
    pages = "87--113",
    journal = "Review of Economic Studies",
    issn = "0034-6527",
    publisher = "Oxford University Press",
    number = "1",

    }

    TY - JOUR

    T1 - Group formation in risk-sharing arrangements

    AU - Genicot, Garance

    AU - Ray, Debraj

    PY - 2003/1

    Y1 - 2003/1

    N2 - We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. However, such deviations must be credible, in the sense that the subgroup must pass exactly the same test that we apply to the entire group; it must itself employ some self-enforcing risk-sharing agreement. We observe that the stability of subgroups is inimical to the stability of the group as a whole. Two surprising consequences of this analysis are that stable groups have (uniformly) bounded size, a result in sharp contrast to the individual-deviation problem, and that the degree of risk-sharing in a community is generally non-monotonic in the level of uncertainty or need for insurance in the community.

    AB - We study informal insurance within communities, explicitly recognizing the possibility that subgroups of individuals may destabilize insurance arrangements among the larger group. We therefore consider self-enforcing risk-sharing agreements that are robust not only to single-person deviations but also to potential deviations by subgroups. However, such deviations must be credible, in the sense that the subgroup must pass exactly the same test that we apply to the entire group; it must itself employ some self-enforcing risk-sharing agreement. We observe that the stability of subgroups is inimical to the stability of the group as a whole. Two surprising consequences of this analysis are that stable groups have (uniformly) bounded size, a result in sharp contrast to the individual-deviation problem, and that the degree of risk-sharing in a community is generally non-monotonic in the level of uncertainty or need for insurance in the community.

    UR - http://www.scopus.com/inward/record.url?scp=0037242541&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0037242541&partnerID=8YFLogxK

    U2 - 10.1111/1467-937X.00238

    DO - 10.1111/1467-937X.00238

    M3 - Article

    AN - SCOPUS:0037242541

    VL - 70

    SP - 87

    EP - 113

    JO - Review of Economic Studies

    JF - Review of Economic Studies

    SN - 0034-6527

    IS - 1

    ER -