Managing the Economic Impact of Political Risk

Abstract

Political risk is the risk related to the outcome of political decisions. Such risk comes in many forms and is likely to be important for many firms and individuals. Still, political risk is relatively little analyzed, possibly because it is difficult to quantify and model. In this paper, different types of political risk are discussed, and a model is outlined for how such risk could be measured, analyzed, and coped with from a practical perspective. Finally, the paper provides a brief discussion of whether and how governments should try to reduce this political risk.