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Investment and Diversification in the American Whaling Industry

Published online by Cambridge University Press:  29 May 2007

Eric Hilt
Eric Hilt
Affiliation:
Assistant Professor, Department of Economics, Wellesley College, Wellesley, MA 02481 Faculty Research Fellow, NBER. E-mail: ehilt@wellesley.edu.
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Abstract

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.

Type
ARTICLES
Information
The Journal of Economic History , Volume 67 , Issue 2 , June 2007 , pp. 292 - 314
Copyright
© 2007 The Economic History Association

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