Minimum 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 parties' incentives to reduce risk when insurers can observe levels of care, but dilute incentives to reduce risk when insurers cannot observe levels of care. In the latter case, compulsory liability insurance may be inferior to minimum asset requirements.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
10341.
Length: Date of creation: Mar 2004 Date of revision: Handle: RePEc:nbr:nberwo:10341
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Find related papers by JEL classification: D00 - Microeconomics - - General - - - General K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability
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Che, Yeon-Koo & Spier, Kathryn, 2006.
"Strategic Judgment Proofing,"
MPRA Paper
6100, University Library of Munich, Germany.
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