The Significance of Risk under Incomplete Markets

  • Jean-Paul Chavas
  • Zohra Bouamra-Mechemache
Part of the Natural Resource Management and Policy book series (NRMP, volume 23)


The efficiency of complete competitive markets is well known (e.g., Allais 1943, 1981, Arrow and Debreu 1954, Debreu 1959, Mas-Colell, Whinston, and Green 1995, Luenberger 1995). Efficiency results apply as well to the allocation of risk (e.g., Debreu 1959). Yet markets (and especially risk markets) are typically incomplete. This is particularly true in the agricultural sector where weather uncertainty and unstable commodity markets can generate significant income risk, often borne by farmers. This has stimulated a policy debate on the efficiency of risk allocation and the relative role of market mechanisms versus government interventions. This is a complex issue. The limitations of alternative approaches have been pointed out. Market failures have been contrasted with government failures. In addition, the prevalence of both incomplete markets and incomplete contracts has made the economic analysis of risk allocation somewhat difficult.


Transaction Cost Risk Aversion Information Cost Risk Market Competitive Equilibrium 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer Science+Business Media New York 2002

Authors and Affiliations

  • Jean-Paul Chavas
    • 1
    • 2
  • Zohra Bouamra-Mechemache
    • 1
    • 2
  1. 1.University of WisconsinMadisonUSA
  2. 2.Institut National de la Recherche AgronomiqueToulouseFrance

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