Egalitarian Equivalent Capital Allocation
17 Pages Posted: 11 Apr 2015
Date Written: April 9, 2015
We apply Moulin’s notion of egalitarian equivalent cost sharing of a public good to the problem of insurance capitalization and capital allocation where the liability portfolio is fixed. We show that this approach yields overall capitalization and cost allocations that are Pareto efficient, individually rational, and, unlike other mechanisms, stable in the sense of adhering to cost monotonicity.
Keywords: Insurance, capital allocation, public good
JEL Classification: G11, G22, H41
Suggested Citation: Suggested Citation