Purpose This paper aims to show that innovation does not exclude the possibility of risk minimisation. Design/methodology/approach The axiomatic model presented is a modification of a two-period financial economy with corporations in which real market activities are coordinated by the financial market and risk is seen through the prism of utility theory. Assuming that in an initial period, it is known what new commodities or what new assets will appear on the market in a second period and what their prices in every state will be, the complete financial market is considered. Findings It is shown that in the considered economy, under the assumption that every consumer is risk-averse as well as total endowments are not the sources of risk, there is a Pareto optimal allocation in which the plan of every consumer is risk-free. The proposed measure of risk is coherent, in some cases, with one of those used in practice. Originality/value The results provide new insights into the possibility of risk aggregation leading to its minimisation, on the basis of analysis of a newly specified two-period economy with a financial market of bonds and equity contracts.
Ćwięczek et al. (Fri,) studied this question.