This book updates and advances the theory of expected utility as applied to risk analysis and financial decision making. Von Neumann and Morgenstern pioneered the use of expected utility theory in the 1940s, but most utility functions used in financial management are still relatively simplistic and assume a mean-variance world. Taking into account recent advances in the economics of risk and uncertainty, this book focuses on richer applications of expected utility in finance, macroeconomics, and environmental economics.
Governments around the world are deeply divided about the proper role of industrial policy, with some politicians arguing for hands-off governance and others supporting government intervention to promote “national champions”-- firms that receive government support for both political and economic reasons. In this volume, prominent economists present the pros and cons of government support for national champions.
Risk sharing is a cornerstone of modern economies. It is valuable to risk-averse consumers and essential for investment and entrepreneurs. The standard economic model of risk exchange predicts that competition in insurance markets will result in all individual risks being insured—that all diversifiable risks in the economy will be covered through mutual risk-sharing arrangements—but in practice this is not the case. Many diversifiable risks are still borne by individuals; many environmental, catastrophic, and technological risks are not covered by insurance contracts.