
doi: 10.2139/ssrn.6588142
A business model chooses a design parameter d ∈ (0, ∞) ex ante, which determines the resulting loss function L(d). Let α ∈ (0, 1) denote the fraction of losses directly internalized by the business model, and let β ∈ [0, 1] denote the fraction of transferred losses not borne by the business model. Define the effective internalization rate λ := α + β(1-α). We prove λ < 1, establishing that full internalization of produced risk is impossible under the stated axioms.
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