Optimal Risk-Sharing Rules in Network-based Decentralized Insurance
Abstract
This paper studies decentralized risk-sharing on networks. In particular, we consider a model where agents are nodes in a given network structure. Agents directly connected by edges in the network are referred to as friends. We study actuarially fair risk-sharing under the assumption that only friends can share risk, and we characterize the optimal signed linear risk-sharing rule in this network setting. Subsequently, we consider a special case of this model where all the friends of an agent take on an equal share of the agent's risk, and establish a connection to the graph Laplacian. Our results are illustrated with several examples.
Keywords
Cite
@article{arxiv.2602.05155,
title = {Optimal Risk-Sharing Rules in Network-based Decentralized Insurance},
author = {Heather N. Fogarty and Sooie-Hoe Loke and Nicholas F. Marshall and Enrique A. Thomann},
journal= {arXiv preprint arXiv:2602.05155},
year = {2026}
}
Comments
21 pages, 2 figures. Added missing i=j condition on equations 4 and 8, corrected matrix and objective function value on example in 2.4.4