Suppose Four Identical, Risk-Averse Individuals Form a Partnership to Share

question 36

Essay

Suppose four identical, risk-averse individuals form a partnership to share equally the profit or loss from an investment.
(a) What is the effect on each individual's expected profit and certainty equivalent (CE)?
(b) What happens to the total value of the syndicate as the risk is split among more and moreindividuals?

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Definitions:

Internal Employee Movement

The transfer or promotion of employees within an organization, often as part of career development or succession planning strategies.

Organizational Identity

The self-concept of an organization, based on its central, distinctive, and enduring characteristics.

Implicit Employment Contract

An unwritten and unspoken agreement between an employer and employee that outlines mutual expectations, including job security and loyal service.

Job Rotation

An employment practice where employees are moved between two or more jobs in a planned manner to expose them to different experiences and widen their skills.