Equilibrium in a Reinsurance Market
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Abstract
This paper investigates the possibility of generalizing the classical theory of commodity markets to include uncertainty. It is shown that if uncertainty is considered as a commodity, it is possible to define a meaningful price concept, and to determine a price which makes supply equal to demand. However, if each participant seeks to maximize his utility, taking this price as given, the market will not in general reach a Pareto optimal state. If the market shall reach a Pareto optimal state, there must be negotiations between the participants, and it seems that the problem can best be analysed as an n-person cooperative game.