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Article

A Welfare Analysis of Capital Insurance

Belk College of Business, University of North Carolina at Charlotte, Charlotte, NC 28223, USA
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Risks 2013, 1(2), 57-80; https://doi.org/10.3390/risks1020057
Received: 26 July 2013 / Revised: 29 August 2013 / Accepted: 6 September 2013 / Published: 17 September 2013
(This article belongs to the Special Issue Systemic Risk and Reinsurance)
This paper presents a welfare analysis of several capital insurance programs in a rational expectation equilibrium setting. We first explicitly characterize the equilibrium of each capital insurance program. Then, we demonstrate that a capital insurance program based on aggregate loss is better than classical insurance, when big financial institutions have similar expected loss exposures. By contrast, classical insurance is more desirable when the bank’s individual risk is consistent with the expected loss in a precise way. Our analysis shows that a capital insurance program is a useful tool to hedge systemic risk from the regulatory perspective. View Full-Text
Keywords: capital insurance; welfare; equilibrium capital insurance; welfare; equilibrium
MDPI and ACS Style

Panttser, E.; Tian, W. A Welfare Analysis of Capital Insurance. Risks 2013, 1, 57-80. https://doi.org/10.3390/risks1020057

AMA Style

Panttser E, Tian W. A Welfare Analysis of Capital Insurance. Risks. 2013; 1(2):57-80. https://doi.org/10.3390/risks1020057

Chicago/Turabian Style

Panttser, Ekaterina, and Weidong Tian. 2013. "A Welfare Analysis of Capital Insurance" Risks 1, no. 2: 57-80. https://doi.org/10.3390/risks1020057

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