Scandinavian Working Papers in Economics

Working Papers in Economics,
University of Bergen, Department of Economics

No 09/07: Risk exchange as a market or production game

Anders Borglin () and Sjur Didrik Flåm ()
Additional contact information
Anders Borglin: Lund University, School of Economics and Management, Postal: Box 7082, S-220 07 LUND, Sweden ,
Sjur Didrik Flåm: University of Bergen, Department of Economics, Postal: Hermann Fossgt. 6, N-5007 Bergen, Norway

Abstract: Risk exchange is considered here as a cooperative game with transferable utility. The set-up fits markets for insurance, securities and contingent endowments. When convoluted payoff is concave at the aggregate endowment, there is a price-supported core solution. Under variance aversion the latter mirrors the two-fund separation in allocating to each agent some sure holding plus a fraction of the aggregate.

Keywords: securities; mutual insurance; market or production games; transferable utility; extremal convolution; core solutions; variance or risk aversion; two-fund separation; CAPM.

JEL-codes: C61; G11; G12; G13

27 pages, September 3, 2007

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