pith. sign in

arxiv: 2606.00972 · v1 · pith:QFNLYXY3new · submitted 2026-05-31 · 💰 econ.TH

Designing entry-monotone risk-sharing pools

classification 💰 econ.TH
keywords riskallocationcoalitionconditionscooperativecostensuregame
0
0 comments X
read the original abstract

While risk pooling lowers the total cost of risk, efficiency alone does not make a pool viable. Participants need terms that ensure their participation, that are immune to subgroups breaking away, and that allow new members to join. Under cash-additive risk measures, the minimum cost of a coalition's risk determines the value created by that coalition, and deterministic side payments redistribute that value among participants. Institutional risk sharing is thus a transferable-utility cooperative game. We prove that the game is totally balanced whenever the risk measures are convex (agents are risk averse), so every coalition has a nonempty core and stable allocations always exist. We then analyze entry monotonicity through Population-Monotonic Allocation Schemes (Sprumont, 1990), a strong requirement that is notoriously difficult to construct and has received limited attention in risk sharing. We find several structural conditions that ensure that either the Arrow--Debreu pricing surplus allocation rule or the proportional-cost surplus allocation rule satisfies this entry-monotonicity property, the latter being a novel cooperative notion we propose. These verifiable structural conditions naturally arise in pooled (re)insurance and credit portfolios, providing pool designers with a practical toolkit for building risk pools that remain stable and attractive as they expand.

This paper has not been read by Pith yet.

discussion (0)

Sign in with ORCID, Apple, or X to comment. Anyone can read and Pith papers without signing in.