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Working paper

Risk as a good

Penikas H. I., Vasilyeva K., Selmier II W. T.
The recent financial crisis has once again shown us that our knowledge of the financial sphere is insufficient to manage, let alone control, these types of crises. The concept of risk is a crucial pillar in that sphere, and this paper aims to present an alternative paradigm of risk to mitigate future financial crises. Our key point is that risk is not simply a feature of a financial product, it is a good itself. We discuss stylized facts to examine the complexity of risk and how it may be typed as a good depending on the scale of its impact and initial conditions. Our principal conclusions are first, that risk is most accurately typed as a common-pool resource (particularly systemic risk) and so another approach to pricing risk is needed.  Second, for more effective governance, risk-loving agents need to contribute to a quasi-insurance fund. We outline the basics of this insurance fund and sketch its mechanism. Insurance recipients are risk-averse agents who do not contribute as they are forced to participate in systemic risk-taking against their preferences.