ABSTRACT
Virtually all projects in an economy yield uncertain benefits. Uncertainty is present in both public investment undertaken by governments, as well as in market activities in the private sector. In each situation, agents must share the risk and therefore must decide how much of the risk to share. Moreover, due to risk aversion, each participant faces a cost of bearing risk. Thus, each participant must choose whether and how much they are willing to contribute to these risky projects (i.e., to share the risk). It is important to understand the basis for evaluating, and thus allocating, these risky projects.
