Capital and the Common Good by Keohane Georgia L;

Author:Keohane, Georgia L;
Language: eng
Format: epub
Tags: BUS027000, Business & Economics/Finance, BUS094000, Business & Economics/Green Business
Publisher: Columbia University Press
Published: 2016-09-19T16:00:00+00:00

The Power of the Portfolio: Risk Pooling and Transfer

Thus, ARC was formed in 2012 to be a pooled contingency fund linked to early warning systems that Syroka and Wilcox hoped would ensure “more timely and predictable aid in times of crisis, risk price information for sound development portfolio decisions, and dignity for the beneficiaries.”13 Risk pooling for disaster is not new, but for the first time, African countries can take advantage of the diversification of weather risks across the continent. The ARC pool takes on the risk profile of the group rather than that of each individual country. Because it is unlikely that droughts will occur in the same year in all parts of the continent, not every country in the pool receives a payout in any given year. This means the pool can manage drought risk with less funds than if each country insured itself individually. Like all insurance, coverage through ARC is substantially cheaper than what any one country could obtain alone. The collective cost of capital reduces the cost for each country by an estimated 50 percent. ARC’s hope is that countries will invest the savings in long-term development projects and resilience-building activities. This is an important distinction. Although insurance is a critical tool for major, but infrequent, disaster response, chronic development challenges require investment.

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