ECON 138 Risk and Insurance

The nature of economic risk, its effect on allocation of resources and how public policy should be conducted in markets for risk. Preferences among risky prospects: expected utility theory and the theory of risk aversion. Allocation of risk using markets for contingent claims vs. insurance pools in economies with complete information. The functioning of insurance markets when information is asymmetric, under moral hazard and adverse selection. Can insurance markets function well in a competitive equilibrium and what should be public policy in markets such as medical insurance? Role of asset markets in allocating risk. Hedging strategies using futures markets, options and other derivative assets. The role of risk taking in the 2007-2008 financial crises. Prerequisite: ECON 50., ECON 102A

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