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Minimum Asset Requirements

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  • Steven Shavell

Abstract

Requirements that parties have assets of at least a minimum level in order to participate in an activity are frequently imposed. A principal rationale for minimum asset requirements is considered in this article potential injurers have stronger incentives to prevent harm, or not to engage in harmful activities, provided that they have at least the required level of assets at stake if they are sued for causing harm. The optimal minimum asset requirement generally reflects a tradeoff between this advantage and the disadvantage that some parties with assets below a required level ought to engage in the activity (because the benefits they would obtain exceed the expected harm they would cause). Additionally, it is emphasized that minimum asset requirements are socially desirable only when the victims of harm are not customers of firms. When victims of harm are customers of firms, minimum asset requirements are socially undesirable.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9335.

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Date of creation: Nov 2002
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Publication status: published as Shavell, Steven. "Minimum Asset Requirements And Compulsory Liability Insurances As Solutions To The Judgment-Proof Problem," Rand Journal of Economics, 2005, v36(1,Spring), 63-77.
Handle: RePEc:nbr:nberwo:9335

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  1. T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
  2. Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
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Cited by:
  1. Steven Shavell, 2004. "Minimum Asset Requirements and Compulsory Liability Insurance As Solutions to the Judgment-Proof Problem," NBER Working Papers 10341, National Bureau of Economic Research, Inc.
  2. Giuseppe Dari Mattiacci & Gerrit De Geest, . "When Will Judgment Proof Injurers Take Too Much Precaution?," German Working Papers in Law and Economics 2002-1-1051, Berkeley Electronic Press.
  3. Juan José Ganuza & Fernando Gómez, 2003. "Optimal negligence rule under limited liability," Economics Working Papers 759, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2004.
  4. Francisco Ramos Romeu, 2010. "An economic theory of the regulation of preliminary measures," European Journal of Law and Economics, Springer, vol. 30(3), pages 267-300, December.

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