Investment and Diversification in the American Whaling Industry
This article analyzes the connection between investment decisions and financing arrangements in the nineteenth-century American whaling industry. Managers of whaling ventures shared their risks by selling some equity claims but retained a substantial portion due to moral hazard considerations. As a result, they had little incentive to consider the covariance between their own returns, and those of others, in planning their voyages. This stifled diversity in whaling voyages and increased industry-wide risk. The analysis suggests a link between financial market development, or the extent of risk sharing in financial markets, and the range of economic activities pursued.
Volume (Year): 67 (2007)
Issue (Month): 02 (June)
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