Outsourcing Volatility

Imagine a country where people only eat potatoes. Supply is stable, and the people are happy. But if anything happens to potatoes, the whole country would collapse.

A hedge is needed. The country can try to grow other crops, but doing so would mean taking land away from productive potato growers. New crops might also prove less nutritious but more fruitful and expand organically to neighboring fields. This seems like too much of a risk for a country that values stability and predictability above all else.

The country faces two bad options: Rely on a single crop and risk a rare but huge famine; or experiment with multiple crops and risk general instability and a lower — but still meaningful — possibility of a large famine.

Is there an alternative?

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Πηγή: drorpoleg.com