Design Principles for Risk-Pooling Systems

Monday, March 25, 2024 (2 PM – 3:30 PM)

Lee Cronk

Rutgers University

In times of crisis, risk pooling can enhance the resilience of individuals, households, and communities. Risk pooling systems are most effective when their participants adhere to several principles: (1) participants should agree that the pool is for needs that arise unpredictably, not for routine, predictable needs; (2) giving to those in need should not create an obligation for them to repay; (3) participants should not be not expected to help others until they have taken care of their own needs; (4) participants should have a consensus about what constitutes need; (5) resources should be either naturally visible or made visible to reduce cheating; (6) individuals should be able to decide which partners to accept; and (7) the scale of the network should be large enough to cover the scale of risks. We discuss the cultural and evolutionary foundations of risk pooling systems, their vulnerabilities, and their relationship to commercial insurance.