Optimal risk sharing with background risk


Journal of Economic Theory

mars 2007, vol. 133, n°1, pp.152-176

Départements : Economie et Sciences de la décision

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 maximizersKeywords: Insurance; Efficient contracts; Incomplete markets; Stochastically increasing