Sharing ambiguous risks

Chakravarty, Surajeet; Kelsey, David

Abstract

We analyse risk-sharing when individuals perceive ambiguity about future events. The main departure from previous work is that di¤erent individuals perceive ambiguity di¤erently. We show that individuals fail to share risks for extreme events. This may provide an explanation why we do not observe individuals buying insurance for certain events like hurricanes or earthquakes and why many contracts contain an "act of God" clause, which allows non-performance if an unforeseen event occurs.

Citation

Chakravarty, S., & Kelsey, D. (2015). Sharing ambiguous risks. Journal of Mathematical Economics, 56, 1-8. https://doi.org/10.1016/j.jmateco.2014.11.001

• Journal Article Type: Article
• Acceptance Date: Nov 6, 2014
• Online Publication Date: Nov 17, 2014
• Publication Date: 2015-01
• Deposit Date: Jun 22, 2020
• Publicly Available Date: Jun 23, 2020
• Journal: Journal of Mathematical Economics
• Print ISSN: 0304-4068
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 56
• Pages: 1-8
• DOI: https://doi.org/10.1016/j.jmateco.2014.11.001
• Keywords: ambiguity, risk-sharing, Choquet expected utility, act of God JEL Classi…cation: D01; D51; D81
• Public URL: https://nottingham-repository.worktribe.com/output/4699755
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0304406814001360