Karl Borch: A driving force behind the expansion of research at NHH
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| Professor Karl Borch, 1919 - 1986 | |
Developments in insurance economics over the past few decades provide a vivid illustration of the interplay between abstract theorising and applied research. In any account of these developments, the specific early contributions of Karl Henrik Borch, from the late fifties onwards, are bound to stand out.
Karl Borch's life was eventful, sometimes adventurous. Reality, however, was neither easy, nor straightforward. He was born in Sarpsborg in 1919, graduated from high school in 1938 and started working in the insurance industry at the same time as starting undergraduate studies at the University of Oslo. As with many of his generation, Borch's education was interrupted by the Second World War and in 1941 he fled to Great Britain. Borch was first attached to the Norwegian government in exile, working in the office of foreign affairs, and later spent three years with the Free Norwegian Forces. He returned to Norway after the war and graduated with a Master of Science in actuarial mathematics in 1947.
Borch was hired by the insurance industry after his graduation but his tenure was short-lived. In August 1947 a new period in his life started with an appointment as Science Liaison Officer at UNESCO, serving in the Middle East, a position he held until 1950. New UN-appointments followed, first as Technical Assistance Representative in Iran during 1950-51 and then back to UNESCO in 1952, this time in the southern part of Asia. During 1953-54 he represented UNICEF in Africa, south of Sahara, and from 1955 until the summer of 1959 he was with the OECD in Paris as director for the division of productivity studies.
Borch's professional life so far gives few indications of a future academic career. One exception may be the spring semester of 1953, which he spent as a research associate at the Cowles Commission for Research in Economics at the University of Chicago (at that time the leading centre in the world for the application of mathematical and statistical methods in economic research). Here he met some of the world's leading economists and as a result published an article in Econometrica about the effects on demand for consumer goods as a result of changes in the distribution of income.
In 1959 he took the important step into the academic world. The opportunity came at NHH through the donation of a chair in insurance. Borch was first given the scholarship associated with the chair and used this three year period to take his doctorate at the University of Oslo in 1962. In 1963 Borch was appointed professor of insurance at the NHH, a position he held until his untimely death in 1986.
The move into academia must have been perceived as a rather risky one, both for him and for NHH. Borch was 40 years of age and had limited academic credentials, but he fearlessly accepted the new challenge. During the first years of his 'real' research career he wrote the first of a long series of seminal papers, which were to put him on the map as one of the world's leading scholars in his field.
Borch knew the recent theoretical works in the field and he understood perfectly their significance, as well as their limitations, at a time when few economists had taken notice. One important contribution of his subsequent papers was to derive testable implications from the abstract model of general equilibrium with markets for contingent claims. In this way Borch brought economic theory to bear on insurance problems, thereby opening up the field considerably; and he brought the experience of reinsurance contracts to bear on the interpretation of economic theory, thereby enlivening considerably the interest for that theory.
Borch did not write only about insurance, but it is fair to say that after he started his academic career practically his entire production was centred on the topic of uncertainty in economics in one form or the other. Many of his thoughts around the economics of uncertainty were formulated in his successful book The Economics of Uncertainty (published in 1968 by Princeton University Press and later translated into Spanish, German and Japanese). The background for this particular work is rather special: Borch was visiting The University of California, Los Angeles, where he was about to give a series of lectures on insurance economics. The topic did not seem to attract much attention at the time, and only a few students signed up for the course. Borch changed marketing strategy, and renamed the course The Economics of Uncertainty. Now a suitably large group of students turned out, the course was given, the contents changed slightly, and the well-known book resulted. This illustrates the close connection between economics of uncertainty and insurance economics, at least as seen from Karl Borch´s point of view.
In his subsequent publications, Karl Borch often related advanced theoretical results to casual observations, sometimes in a genuinely entertaining manner, which transmits to younger generations a glimpse of his wit and personal charm.
Borch helped establish the bridge that links the theory of reinsurance markets and the Capital Asset Pricing Model (CAPM) developed by his former student Jan Mossin, among others. Although Borch was keenly conscious of the restrictive nature of the assumptions underlying the CAPM he often used that model as an illustration, stressing that "the applications of CAPM have led to deeper insight into the functioning of financial markets".
A lot can be said about Karl Borch's importance for NHH. His appointment as professor coincided with the big expansion period in the 1960's, which transformed NHH from a small to a relatively large institution of its type. For the generation of scholars who became attached to NHH as research assistants during this period, Borch had an enormous influence as teacher, advisor, and role model. He gave the first lectures at graduate level and was advisor for a long series of Master's and Doctoral candidates. As an advisor he encouraged his students to study abroad, and used his broad network of international contacts to help them get to the best places. He also encouraged them to raise their ambitions and write with a view towards international publishing.
The international recognition NHH enjoys today is based on the fundamental efforts of Borch in this period. Naturally enough Borch influenced the research orientation of a group of younger scholars. For a while NHH was known as the place where 'everybody' was concerned with uncertainty. Both for his own research and for his inspiration and encouragement of the research environment Borch was the obvious choice to receive the NHH Price for Excellent Research, awarded for the first time in 1986.
Karl Borch was member of a number of professional organisations, took part in their activities with enthusiasm and presented his ideas in innumerable lectures, discussions and written contributions. Borch became a driving force behind the maturation, extension and credibility of the Geneva Association after participating for the first time in 1973. The consistent quality of his contributions led to his invitation to present the fourth 'Annual Lecture' of the Association in 1980 and in 1990 they honoured his memory by publishing Risk, Information and Insurance, Essays in the Memory of Karl H. Borch. Borch was also invited to the Royal Statistical Society in London, where he presented The Theory of Risk, published with discussion in their prestigious scientific.
In addition to the work already mentioned, it should be mentioned that his pioneering work on Pareto-optimal risk exchanges in reinsurance opened a new area of actuarial science, which has been in continuous growth since. Borch also gave many contributions to the application of game theory in insurance. With his clear intellect Borch was typically attracted to game theory. In particular he characterised the Nash bargaining solution in a reinsurance syndicate and analysed the moral hazard problem in insurance by a Nash equilibrium in mixed strategies, amongst many other applications.
During his period as a professor, from 1962 till his death in December 1986, he had more than 150 publications in scientific journals, proceedings and transactions from scientific conferences, among them three books. His output averaged more than six published papers a year while he held the chair in Bergen. At his death he was working on a manuscript to a fundamental textbook in the economics of insurance. This manuscript, supplemented by some of Borch's papers, was later published as Economics of Insurance. This book was translated into Chinese in 1999.
Abridged from: Aase, K. K. (2003) “The life and career of Karl H. Borch”, Discussion Paper, 2003/5, Department of Finance and Management Science, NHH
