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Guides top for Perfectly correlated risks occur when all of us become sick simultaneously (epidemics), and when all farmers suffer from a devastating disaster. Such events are (fortunately) rare. Since risks affect different people at different times, it is possible to share them. This circumvents the large sacrifices associated with self-insurance. Risk-sharing takes advantage of the fact that the total resources available to a group of individuals is larger, and that a given risk can be diversified across the group, or shared. Risksharing arrangements can be formal contracts, such as car insurance, which involve individuals who are exposed to similar risks. Extended families and communities can share risks through informal arrangements, whereby help is extended to those who need it the most. Guides top 2016.

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