Shareholders expect above "normal" - that is, risk-free - returns on
their investments in stocks. These are supposed to offset trading
liquidity, issuer insolvency, and market volatility risks.
In his recent book, "When all Else Fails: Government as the Ultimate
Risk Manager", David Moss, an associate professor at Harvard Business
School, argues that the all-pervasiveness of modern governments is an
outcome of their unique ability to reallocate and manage risk.
He analyzes hundreds of examples - from bankruptcy law to income
security, from flood mitigation to national defense, and from consumer
protection to deposit insurance. The limited liability company shifted
risk from shareholders to creditors. Product liability laws shifted
risk from consumers to producers.
And, we may add, over-generous pension plans shift risk from current
generations to future ones. Export and credit insurance schemes - such
as the recently established African Trade Insurance Agency or the more
veteran American OPIC (Overseas Private Investment Corporation), the
British ECGD, and the French COFACE - shift political risk from buyers,
project companies, and suppliers to governments.
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