Title: Transfers, uncertainty and the cost of disruption
Abstract: Several results in law and economics hinge upon the assumption of risk neutrality or risk-aversion of the relevant parties. Risk-aversion assumptions are generally presented as the unavoidable byproduct of diminishing marginal utility of wealth and are considered appropriate for the study of individual consumer behavior. Due to the investor’s ability to diversify risk, firms and corporate entities are instead frequently modelled as risk-neutral, profit-maximizing, agents. This paper suggests that, irrespective of any consideration of subjective utility, unexpected and substantial wealth transfers lead to disruption costs, which in turn generate a net welfare loss. Despite their quite different origin and rationale, disruption costs generate normative implications that, for many practical purposes, are akin to those derived from risk-aversion: indeed, disruption costs may be considered a (further) cause of risk-aversion. This paper explores the extent to which this overlooked type of costs may change, or corroborate, the results reached in a variety of law and economics analyses of private law.
Publication Year: 2003
Publication Date: 2003-03-01
Language: en
Type: article
Indexed In: ['crossref']
Access and Citation
Cited By Count: 16
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