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Wed, March 24, 2004. Call from Hogan.
Wanted to discuss examples of witholding being a good idea.
After that, I brought up risk. Was it costly in the present market?
He argued:
1) There was no risk premium, it was just a bad time to invest.
2) It had been shifted from consumers (under regulation) to suppliers.
3) Risk could not be reduced by the market only shifted.
I pointed out that both forward and insurance markets reduced risk.
He disagreed and said he knew of no example of risk being reduced.
I explained several times I was talking about the basic econ textbook concept of risk,
and that I was not talking about expected values.
He mentioned fire insureance so, I worked an example in which insurance made everyone completely certain of their annual loss. He didn't get it.
After reviewning the utility function theory of risk, he finaly remembered.
4) He argued that risk produced incentives, as a counter to: we should not ignore risk.
He simply found it impossible to come out and say, different market designs impose different risk and that's one factor that matters.
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http://stoft.com/p/66.html | 01/06/09 03:04 GMT
Modified: Mon, 13 Feb 2006 19:53:40 GMT
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Look Inside on Amazon
China has nixed caps for 15 years. Kyoto is stuck. Addiction continues. OPEC will soon return.
Environmental & energy-security forces distrust each other.
Carbonomics shows the policies of cooperation, the only path to success.
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