La Crema: A case study of mutual fire insurance

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Journal of Political Economy, 111, (2003), pp. 425-458
To cite or link this document: Cabrales, Antonio Calvó, Antoni Jackson, Matthew O.
dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa 2000-12-01
dc.identifier.citation Journal of Political Economy, 111, (2003), pp. 425-458
dc.description.abstract 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.
dc.language.iso eng
dc.relation.ispartofseries Economics and Business Working Papers Series; 518
dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
dc.title La Crema: A case study of mutual fire insurance
dc.type info:eu-repo/semantics/workingPaper 2014-06-03T07:14:03Z
dc.subject.keyword Microeconomics
dc.subject.keyword insurance
dc.subject.keyword contract theory
dc.subject.keyword mechanism design
dc.subject.keyword truthful revelation
dc.rights.accessRights info:eu-repo/semantics/openAccess

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