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Risk Neutrality and Strategic Insurance

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Author Info

  • Roland Kirstein

    (Center for the Study of Law and Economics, Universitat des Saarlandes, D-66041 Saarbrucken)

Abstract

The paper shows that Legal Cost Insurance (LCI) is a device to enhance potential litigants? bargaining position rather than to re-allocate risk. Being insured decreases the cost an insured party has to bear if settlement negotiations fail and the case goes to trial. This shifts the threat points, which has an impact on the bargaining result. In negative expected value suits, LCI can make the threat to sue credible and motivate potential defendants to make positive settlement offers. Hence, even risk-neutral agents may find it beneficial to insure. -- Diese beiden Diskussionspapiere zeigen, daß Rechtsschutzversicherungen eher ein Mittel zur Positionsverbesserung bei Vergleichsverhandlungen als ein Mittel der Risiko-Reallokation sind. Die Versicherung senkt die Kosten, die im Falle des Scheiterns der Vergelcihsverhandlungen und eines Prozesses noch zu tragen wären. Hierdurch verschiebt sich der Drohpunkt und damit auch das Vergleichsergebnis. In Fällen mit negativem Erwartungswert kann die Versicherung sogar die Klagedrohung glaubwürdig machen und den Beklagten überhaupt zu einem positiven Vergleichsergebnis motivieren. Dadurch ist eine Rechtsschutzversicherung auch für risikoneutrale Akteure interessant.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal The Geneva Papers on Risk and Insurance.

Volume (Year): 25 (2000)
Issue (Month): 2 (April)
Pages: 251-261

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Handle: RePEc:pal:gpprii:v:25:y:2000:i:2:p:251-261

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Cited by:
  1. Kirstein, Roland & Rickman, Neil, 2001. "FORIS contracts: Litigation Cost Shifting and Contingent Fees in Germany," CSLE Discussion Paper Series 2001-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  2. Kirstein, Roland & Gerhard, Hans, 2005. "The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation," CSLE Discussion Paper Series 2005-02, Saarland University, CSLE - Center for the Study of Law and Economics.
  3. Arrunada, Benito & Garoupa, Nuno, 2005. "The Choice of Titling System in Land," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 709-27, October.
  4. Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-, December.
  5. Qiao, Yue, 2013. "Legal effort and optimal legal expenses insurance," Economic Modelling, Elsevier, vol. 32(C), pages 179-189.
  6. Benito Arruñada, 2001. "The role of title insurance under recording and registration," Economics Working Papers 565, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
  7. Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
  8. Heyes, Anthony & Rickman, Neil & Tzavara, Dionisia, 2004. "Legal expenses insurance, risk aversion and litigation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 107-119, March.
  9. Mattiacci, Giuseppe Dari & Parisi, Francesco, 2003. "The cost of delegated control: vicarious liability, secondary liability and mandatory insurance," International Review of Law and Economics, Elsevier, vol. 23(4), pages 453-475, December.

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