**Abstract**

Ethiopia's major crises have been caused by institutional failures for which the government is mostly responsible. Institutional and structural flaws are typical causes of governance failure, and they may frequently be traced back to a failed institutional change. The source of social risks in the emerging literatures has not explained by an institutional trap factors. This chapter examines the origins of societal risks, risk management arrangements, and methods for urging institutions to manage risk in Ethiopia. A simple random sampling method were employed to select a total of 382 sampled households from 10 sub-districts. Structured interview schedule, focus group discussion, and key informant interviews data collection tools has been employed. The data were analyzed using principal component analysis and qualitative approach. The result of the qualitative analysis shows social risks faced by households caused from governance failures, institutional disincentives, elite's exploitations, and inefficiency. The result from principal component analysis reveals that market based, informal and public arrangements was identified as institutional arrangements having high factor loadings The imply that institutional arrangements are crucial interventions in managing social risks. Thus, this study suggests a well-designed institution and institutional arraignments for managing risks and removal of the underlying sources of social risks.

**Keywords:** social risks, institutional traps, risk management, institutional arrangements, and institutional arrangements for social risk management
