It is a commonplace observation that risk-averse farmers ought to prefer less risk. In this paper, we provide three qualifications to this commonplace. First, we note that (properly defined) “less risk” need not imply “smaller variance.” Second, we note that when farmers produce under...

In many contracts that deal with the division of future quantities, there is a tension between risk-sharing aspects and incentive aspects. Over the last twenty-five there has been relatively more attention paid to these incentive aspects, particularly moral hazard. In this paper, we point out...

Societies provide institutions that are costly to use, but able to enforce long-run relationships. We study the optimal decision problem of using self-governance for risk sharing or governance through enforcement provided by these institutions. Third-party enforcement is modelled as a costly...