Information, incentives, and effects of risk-sharing on the real economy

Mark Liu, Wenfeng Wu, Tong Yu

Research output: Contribution to journalEditorial

7 Scopus citations

Abstract

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.

Original languageEnglish
Article number101100
JournalPacific Basin Finance Journal
Volume57
DOIs
StatePublished - Oct 2019

Bibliographical note

Funding Information:
Liu, Wu, and Yu served as co-editors of the Pacific-Basin Finance Journal's special issue on Financial Risk Management in the Asia-Pacific Region. Correspondence can be addressed to any author. The papers in this special issue are selected from the 2017 China International Risk Forum. We thank Dr. Ghon Rhee for the chance for us to put together this special issue and for his continued support of the China International Risk Forum. We also appreciate the help from the reviewers who refereed papers for this special issue, and the research funding from National Natural Science Foundation of China (No. 71850010). All errors and omissions are our own.

Publisher Copyright:
© 2018 Elsevier B.V.

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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