Risk Bearing and the Insurance Market

Stimulated by Karl Borch's paper [3] we have tried to analyze the paper written by K. Arrow [I] in I953. Contrary to Borch's opinion we have some doubt whether this work contains a theory of insurance as a special case. Nevertheless, it has inspired us to this note, which tries to develop a somewhat more realistic model. As a matter of fact, our development is more in the spirit of another paper by Arrow I2]. We, however, have chosen a more general setup, and we believe that our treatment is also different.