Q.Write a note on Risk-bearing Theory of Profit.

Hawley's risk-bearing theory says profit is the reward for undertaking business risks that cannot be shifted or insured; higher risk means higher expected profit.

The Risk-bearing Theory of Profit was propounded by the American economist F. B. Hawley.

Main ideas:

• Every business involves risks and uncertainties — changes in demand, prices, competition, technology, natural calamities, etc.
• The entrepreneur is the person who bears these risks, because the other factors (land, labour, capital) receive fixed contractual rewards (rent, wages, interest) and do not share the risk.
• Profit is the reward for undertaking and bearing this risk.
• Since a rational person will bear risk only if compensated, the greater the risk assumed in a business, the greater the profit the entrepreneur will expect. …