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Axiomatic risk sharing and capital allocation

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  • Boonen, Tim J.
  • Koster, Maurice

Abstract

We aim to share risky endowments among finitely many agents, subject to liquidity constraints. We axiomatically characterize baseline solutions, which use a baseline vector of fixed contributions and a rationing method. We propose a general fairness condition, that uniquely determines these fixed contributions. The fairness condition is flexible enough to allow for the use of any capital allocation rule. One rule stands out as a K-fair solution: the one implied by the constrained egalitarian rationing rule. It is the unique rule satisfying a lower bound on taking part of the risk, a composition property, and null consistency. Furthermore, we provide two more characterizations of this rule; one based on local symmetry and one based on minimax expected contributions under truncation.

Suggested Citation

  • Boonen, Tim J. & Koster, Maurice, 2025. "Axiomatic risk sharing and capital allocation," Insurance: Mathematics and Economics, Elsevier, vol. 121(C), pages 133-143.
    • Handle: RePEc:eee:insuma:v:121:y:2025:i:c:p:133-143
    DOI: 10.1016/j.insmatheco.2025.01.005
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