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Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous

Author

Listed:
  • Chulyoung Kim

    (Yonsei University)

  • Paul S. Koh

    (Columbia University)

Abstract

Minimum asset requirements are an increasingly common form of regulation intended to motivate better decision making by individuals who participate in potentially harmful ac- tivities. Shavell (2005) studied the optimality of this type of regulation within a framework in which an individual can influence the probability of an accident but not the magnitude of the resultant harm. We reinvestigate Shavell's model for the opposite accident scenario, in which an individual can influence the magnitude of harm but not the probability of an accident, and find policy implications different than Shavell's. In particular, we show that in certain situations it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We also examine the effect of liability insurance, and find that regulatory authorities should tighten standards relative to the pure asset requirement and that liability insurance increases social welfare.

Suggested Citation

  • Chulyoung Kim & Paul S. Koh, 2018. "Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous," Working papers 2018rwp-135, Yonsei University, Yonsei Economics Research Institute.
  • Handle: RePEc:yon:wpaper:2018rwp-135
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    minimum asset requirement; liability insurance; judgment proof; endogenous harm.;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • K13 - Law and Economics - - Basic Areas of Law - - - Tort Law and Product Liability; Forensic Economics
    • K20 - Law and Economics - - Regulation and Business Law - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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