Minimum Asset Requirements and Compulsory Liability Insurance as Solutions to the Judgment-Proof Problem
AbstractMinimum asset and liability insurance requirements must often be met in order for parties to participate in potentially harmful activities. Such financial responsibility requirements may improve parties' decisions whether to engage in harmful activities and, if so, their efforts to reduce risk. However, the requirements may undesirably prevent some parties with low assets from engaging in activities. Liability insurance requirements tend to improve incentives to reduce risk when insurers can observe levels of care but dilute incentives when they cannot observe levels of care. In the latter case, compulsory liability insurance may be inferior to asset requirements.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 36 (2005)
Issue (Month): 1 (Spring)
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Web page: http://www.rje.org
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
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