This consumption variation — and thus the unsmoothed element of local shocks — is only about 20 basis points for the 50 US states. 2.2 Insolvency regimes as an example of institutional differences Insolvency rules play a critical role for savings and investment decisions.
Deciding where and how to invest requires forming expectations about expected return and legal rights in case risk scenarios materialise: Will my rights as creditor be protected? How will I, as a debtor, be able to service my debt obligations?