Abstract

By gathering communities of acquainted participants, peer-to-peer (P2P) insurance has been providing partially refundable insurance coverage associated with the social networks among its participants. This study analyzes the issue of moral hazard within the framework of peer-to-peer insurance from a theoretical perspective. We investigate how the social network within the community affects the participants' incentive to spend effort on precautionary loss prevention. Using a quantitative framework to study the moral hazard in P2P insurance, we present that the participants' efforts at Nash equilibria are influenced by their social network. In addition, we investigate how participants' tendency to spend effort in reducing risk varies according to the structure of the social network.