Liability Insurance under the Negligence Rule
AbstractWe analyze the efficiency properties of the negligence rule with liability insurance, when the tort-feasor's behavior is imperfectly observable both by the insurer and the court. Efficiency is shown to depend on the extent to which the evidence is informative, on the evidentiary standard for finding negligence, and on whether insurance contracts can condition directly on the same evidence as used by courts to assess behavior. When evidence is not directly contractible, the negligence rule with compensatory damages is generally inefficient and can be improved by decoupling liability from the harm suffered by the victim.
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Bibliographic InfoPaper provided by CIRPEE in its series Cahiers de recherche with number 0730.
Date of creation: 2007
Date of revision:
Negligence; liability insurance; evidentiary standard; moral hazard; judicial error; decoupling; prudence;
Other versions of this item:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-13 (All new papers)
- NEP-IAS-2007-10-13 (Insurance Economics)
- NEP-LAW-2007-10-13 (Law & Economics)
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