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Insurance hedging in the theory of the firm

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  • Grillet, Luc L.

Abstract

This paper focuses on the costs of limited liability in the theory of the firm. Insurance may discourage the opportunistic externalization of those costs in a way that enhances optimal risk allocation for corporate stakeholders. The paper hypothesizes that insurance will enable the firm to exploit more fully the quasi-rents associated with the profitable use of its organizational capital. At a critical level of insurability, internal coordination of the insurance function by common or joint ownership might enhance the credibility of the firm's organizational capital better than market insurance would do.

Suggested Citation

  • Grillet, Luc L., 1991. "Insurance hedging in the theory of the firm," Discussion Papers, Series II 166, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:166
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    References listed on IDEAS

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