Journal
JOURNAL OF MATHEMATICAL ECONOMICS
Volume 56, Issue -, Pages 1-8Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jmateco.2014.11.001
Keywords
Ambiguity; Risk-sharing; Choquet expected utility; Act of God
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We analyse risk-sharing when individuals perceive ambiguity about future events. The main departure from previous work is that different individuals perceive ambiguity differently. 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. (C) 2014 Elsevier B.V. All rights reserved.
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