Paper #518

Títol:

La Crema: A case study of mutual fire insurance

Autors:

Antonio Cabrales, Antoni Calvó i Matthew O. Jackson

Data:

Desembre 2000

Resum:

We analyze a mutual fire insurance mechanism used in Andorra, which is called La Crema in the local language. This mechanism relies on households' announced property values to determine how much a household is reimbursed in the case of a fire and how payments are apportioned among other households. The only Pareto eficient allocation reachable through the mechanism requires that all households honestly report the true value of their property. However, such honest reporting is not an equilibrium except in the extreme case where the property values are identical for all households. Nevertheless, as the size of the society becomes large, the benefits from deviating from truthful reporting vanish, and all of the non-degenerate equilibria of the mechanism are nearly truthful and approximately Pareto efficient.

Paraules clau:

Insurance, contract theory, mechanism design, truthful revelation

Codis JEL:

A13, C72, D64, D80

Àrea de Recerca:

Microeconomia

Publicat a:

Journal of Political Economy, 111, (2003), pp. 425-458

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