In memoriam

The economics of uncertainty should some day inspire students of economic thought. Developments over the past few decades provide a vivid illustration of the interplay between abstract theorising and applied interests. In any account of these developments, the specific early contribution of Karl Borch (1960) is bound to stand out. The circumstances are noteworthy. In 1959, Karl Borch (then forty years old) came to Bergen from a succession of jobs for international organisations. He writes: ‘When in 1959 I got a research post which gave me almost complete freedom, as long as my work was relevant to insurance, I naturally set out to develop an economic theory of insurance.’ That he should within a year have made a decisive step in that direction is amazing.

The nature of the step is also noteworthy. Borch knew the recent theoretical papers of Allais (1953) and especially of Arrow (1953). He understood perfectly their significance as well as their limitations, at a time when very few economists had taken notice. As he explained more explicitly in 1962, he attributed that lack of recognition to the fact that these ‘relatively simple models appear too remote from any really interesting practical economic situation’. ‘However, the model they consider gives a fairly accurate description of a reinsurance market.’ The contribution of Karl Borch in 1960 was to give empirical content to the abstract model of general equilibrium with markets for contingent claims.