Efficiency in risk bearing implies that
A) risk is completely eliminated.
B) the least risk-averse party bears most of the risk.
C) the most risk-averse party bears most of the risk.
D) all of the risk is borne by just one of the parties regardless of the degree of risk aversion.

Question

Quizplus · Accepted Answer

Efficiency in risk bearing means that the parties bear the risk in a way that minimizes the costs of risk-bearing. The least risk-averse party should bear most of the risk because they can tolerate the risk with the least additional cost, while the more risk-averse party should bear less risk since they would incur greater costs from bearing the risk. Thus, choice B is the correct answer.

Efficiency in Risk Bearing Implies That