This chapter assembles, in a summary fashion, the different sources of exogenous and endogenous randomness encountered in the various contractual contexts examined in the earlier chapters. These risks are essentially due to the attitudes of firms seeking larger market share in imperfect product markets, reducing the quality of products, attempting to make up the imperfection through warranties and insurance, and expanding their financial base through a variety of financial institutions and complex financial products. Attempts to cushion some risks eventually had the effect of increasing the overall risks in the system. Risk sharing activities generally tend to generate greater risk spreading as well. Such risk spreading through contracts has become so endemic that the efficiency of contracts relative to the market mechanism has been undermined. Contracts tend to be more fragile than markets whose inefficiencies they were expected to mitigate. Self-regulatory action by the contracting parties turned out to be inefficient. Regulatory action tends to offer short-term measures to overcome systemic instability in the hope that mature individuals in the contract will behave honorably and bring the system back to a stable equilibrium. However, it appears highly unlikely that the cost minimization originally envisaged can be achieved.


Financial Institution Mutual Fund Foreign Firm Systemic Risk Initial Public Offering 
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.

Copyright information

© Springer India 2016

Authors and Affiliations

  • T. V. S. Ramamohan Rao
    • 1
  1. 1.Indian Institute of Technology KanpurKanpurIndia

Personalised recommendations