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They undermine the very fundaments of capitalism: prices as signals, transmission channels, risk and reward, opportunity cost. Risk reallocation, risk transfer, and risk trading create an artificial universe in which synthetic contracts replace real ones and third party and moral hazards replace business risks.
If the powers of government are indeed commensurate with the scope of its risk transfer and reallocation services why should it encourage its competitors? The greater the variety of insurance a state offers the more it can tax and the more perks it can lavish on its bureaucrats. Why would it forgo such benefits?
These are supposed to offset trading liquidity, issuer insolvency, and market volatility risks. The reallocation and transfer of risk are booming industries. Governments, capital markets, banks, and insurance companies have all entered the fray with ever-evolving financial instruments. Pundits praise the virtues of the commodification and trading of risk.
This part of growth, commonly labelled "multi-factor productivity, represents improvements in the efficiency of production. It is usually seen as the result of innovation by best-practice firms, technological catch-up by other firms, and reallocation of resources across firms and industries." The study analyzed the entire OECD area.
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