Voluntary Contributions to a Mutual Insurance Pool

Louis Lévy-Garboua (1, 2, 3) , Claude Montmarquette (3) , Jonathan Vaksmann (4) , Marie-Claire Villeval (5)

1 CES - Centre d'économie de la Sorbonne
2 PSE - Paris School of Economics
3 CIRANO - Centre interuniversitaire de recherche en analyse des organisations
4 GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux
5 GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne

We study mutual-aid games in which individuals choose to contribute to an informal mutual insurance pool. Individual coverage is determined by the aggregate level of contributions and a sharing rule. We analyze theoretically and experimentally the (ex ante) efficiency of equal and contribution-based coverage. The equal coverage mechanism leads to a unique no-insurance equilibrium while contribution-based coverage develops multiple equilibria and improves efficiency. Experimentally, the latter treatment reduces the amount of transfers from high contributors to low contributors and generates a \dual interior equilibrium". That dual equilibrium is consistent with the co-existence of different prior norms which correspond to notable equilibria derived in the theory. This results in asymmetric outcomes with a majority of high contributors less than fully reimbursing the global losses and a significant minority of low contributors less than fully defecting. Such behavioral heterogeneity may be attributed to risk attitudes (risk tolerance vs risk aversion) which is natural in a risky context.

Mots clés: mutual-aid games

Domaines: Economies et finances

Louis Lévy-Garboua, Claude Montmarquette, Jonathan Vaksmann, Marie-Claire Villeval. Voluntary Contributions to a Mutual Insurance Pool . Journal of Public Economic Theory, 2017, 19 (1), pp.198-218. ⟨10.1111/jpet.12181⟩. ⟨hal-01476440⟩