Best travel destinations in for While these are non-market based institutions, deeply rooted notions of reciprocity ensure enforcement of appropriate risk-sharing. The principal idea underlying risk-sharing arrangements is also applicable in contexts where particular risk categories are not perfectly correlated. Perfectly correlated risks occur when different events happen simultaneously, when drought, flood, and pestilence all happen at the same time, and when coffee and tea prices are positively correlated. But, if low coffee prices coincide systematically with high tea prices, and vice versa, a farmer who can divide the land between tea and coffee reduces the fluctuations in income, and thus uncertainty.
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In effect, the farmer diversifies across a given risk category, or pools different risks. The same diversification principle has been advocated as the single most important investment strategy. Of course, some risks are under our own influence. Best travel destinations in 2016.