Abstract
Abstract
 Purpose: This paper aims to explain the effects of the bankruptcy of one firm in other interrelated companies which are in connection with the bankrupted firm, and shows how the insurance breaks the chain of serial bankruptcy.
 Design: By economic analysis of insurance, the “chain bankruptcy” theory is put forward as a new theory.
 Findings: Through a mathematical-behavioral model, we will show how insurance breaks the chain bankruptcy in the economy.
 Research limitations: We have developed the case with simple modeling based on specific assumptions. In the next step, it would be extended to a more complicated and real set of assumptions.
 Practical implications: We show how insurance products can break serial bankruptcy in the economy.
 Social implications: It is shown that how insurance stabilizes the economy and make the business cycle oscillation range narrow.
 Originality/value: This approach is entirely different and new.
 Article Type: Research paper
Highlights
Economic insurances that are often called commercial insurance have a long history, going back to 6500 years ago
In an economy with n firms, all claims will be equal to all obligations, or: n n
By summing up the above equation, and replacing from (9), the inventory in the economy will be equal to the net worth of asset, or, n n
Summary
Economic insurances that are often called commercial insurance have a long history, going back to 6500 years ago. The mathematical expectation of the payments of the insurer to insured in case of loss of the assets will be equal to: n n The received amount by the insurer (A) is equal to the ratio of insurance fee (q) to the probability of loss of the asset (P) multiplied by the amount paid to insured (B) by the insurance company.
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