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Uncertain Litigation and Liability Insurance

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Author Info
Bharat Sarath
Abstract

Legal penalties and liability insurance seem to have counteracting effects on the incentives of a potential injurer to take due care. However, if legal penalties are set efficiently and implemented perfectly, unrestricted access to insurance can be optimal. In contrast, if the standards of guilt assessment are uncertain, the size of the legal penalties may act as a spur to litigation. Therefore, the penalties required to maintain incentives when access to insurance is unlimited may provoke too much litigation, and as a consequence, the costs of ensuring due care may decline when insurance is restricted by mandate.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 22 (1991)
Issue (Month): 2 (Summer)
Pages: 218-231
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Handle: RePEc:rje:randje:v:22:y:1991:i:summer:p:218-231

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  1. M. Martin Boyer, 2004. "Is the Demand for Corporate Insurance a Habit? Evidence of Organizational Inertia from Directors' and Officers' Insurance," CIRANO Working Papers 2004s-33, CIRANO. [Downloadable!]
  2. Marie-Cécile Fagart & Claude Fluet, 2007. "Liability Insurance under the Negligence Rule," Cahiers de recherche 0730, CIRPEE. [Downloadable!]
    Other versions:
  3. M. Martin Boyer, 2003. "Directors' and Officers' Insurance and Shareholders' Protection," CIRANO Working Papers 2003s-64, CIRANO. [Downloadable!]
  4. Steven Shavell, 2005. "Liability for Accidents," NBER Working Papers 11781, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Eric Rasmusen, 1995. "``Predictable and Unpredictable Error in Tort Awards: The Effect of Plaintiff Self Selection and Signalling,''," Law and Economics 9506003, EconWPA. [Downloadable!]
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