Ginanjar Dewandaru; Ng Adam Boon Ka; Abbas Mirakhor (INCEIF, 2017)
This article discusses one of the myths and the new realities of risk sharing. The myth is that risk sharing contracts are costly and demand more information than debt based contracts. The reality is that risk sharing contracts are incentive-compatible contract because there is an incentive structure in place to elicit truth-telling, trust, cooperation, hard work, and efficiency in resource management; factors that could not be written into contracts and enforced. Hence, the contracts attenuate coordination problem and improve the efficiency of outcomes.
In her book, Payback, 2008, Margaret Atwood claimed: "In Heaven, there are no debts, all have been paid, one way or another; but in Hell there's nothing but debts, and a great deal of payment is exacted, though you can't ever get all paid up. You have to pay, and pay, and keep on paying. So Hell is like an infernal maxed-out credit card that multiplies the charges endlessly." Publication of this book coincided with the Crisis of 2007/2008. Since then, there has been a proliferation of books on the subject of debt, beginning with a book by Reinhart and Rogoff, This Time Is Different. In the book, the authors argued that "though labeled as banking or currency, or even balance of payment crises--all financial crises are at root debt crises. Massive accumulation of private speculative debt in the run up to the 2007/2008 crisis showed that this time was no different". Aside from many books, well-researched theoretical and empirical papers published since then have established a nexus between credit, debt, leverage and onset of financial crisis.
