TY - JOUR
T1 - Information, incentives, and effects of risk-sharing on the real economy
AU - Liu, Mark
AU - Wu, Wenfeng
AU - Yu, Tong
N1 - Publisher Copyright:
© 2018 Elsevier B.V.
PY - 2019/10
Y1 - 2019/10
N2 - In the absence of market imperfections, the mutuality principle leads to efficient risk sharing and the Pareto optimal asset allocations. With market imperfections such as transaction costs and information asymmetry, risk-sharing becomes costly, and it can even lead to financial crises. We emphasize the impact of risk-sharing on the real economy, especially the incentives for the insured party to take on excessive risks because the downsides are borne by the insurer or the ultimate risk taker. We review selective literature and summarize papers included in this issue, grouping them into three broad categories: risk identification, risk measurement, and risk management techniques. We conclude by outlining several streams of future research, including mechanisms to monitor excessive risk-taking, how to mitigate risk interconnectedness, and the potential applications of Fintech in risk sharing.
AB - In the absence of market imperfections, the mutuality principle leads to efficient risk sharing and the Pareto optimal asset allocations. With market imperfections such as transaction costs and information asymmetry, risk-sharing becomes costly, and it can even lead to financial crises. We emphasize the impact of risk-sharing on the real economy, especially the incentives for the insured party to take on excessive risks because the downsides are borne by the insurer or the ultimate risk taker. We review selective literature and summarize papers included in this issue, grouping them into three broad categories: risk identification, risk measurement, and risk management techniques. We conclude by outlining several streams of future research, including mechanisms to monitor excessive risk-taking, how to mitigate risk interconnectedness, and the potential applications of Fintech in risk sharing.
UR - http://www.scopus.com/inward/record.url?scp=85059751872&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85059751872&partnerID=8YFLogxK
U2 - 10.1016/j.pacfin.2018.12.004
DO - 10.1016/j.pacfin.2018.12.004
M3 - Editorial
AN - SCOPUS:85059751872
SN - 0927-538X
VL - 57
JO - Pacific Basin Finance Journal
JF - Pacific Basin Finance Journal
M1 - 101100
ER -