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The Liability Insurance Market

  • Ralph A. Winter

This paper offers an overview of the U.S. liability insurance market and the link between its performance and developments in tort law. Over the last few decades, the dominant feature of the insurance market has been the insurance cycle: intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage. The insurance cycle appears to be increasing in amplitude and, since the 1960s, has been concentrated increasingly in liability lines. The dynamic behavior of the insurance market can be fully explained in a model that emphasizes uncertainty and informational asymmetries, as outlined in this paper. I conclude the paper with a discussion of some policy implications as well as the impact of liability insurance on the incentive role, as opposed to the insurance role, of the tort system.

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.5.3.115
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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 5 (1991)
Issue (Month): 3 (Summer)
Pages: 115-136

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Handle: RePEc:aea:jecper:v:5:y:1991:i:3:p:115-36
Note: DOI: 10.1257/jep.5.3.115
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  1. Raymond D. Hill, 1979. "Profit Regulation in Property-Liability Insurance," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 172-191, Spring.
  2. Alan J. Auerbach, 1982. "Taxation, Corporate Financial Policy and the Cost of Capital," NBER Working Papers 1026, National Bureau of Economic Research, Inc.
  3. Trebilcock, Michael J, 1988. "The Role of Insurance Considerations in the Choice of Efficient Civil Liability Rules," Journal of Law, Economics and Organization, Oxford University Press, vol. 4(2), pages 243-65, Fall.
  4. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring.
  5. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  6. Mayers, David & Smith, Clifford W, Jr, 1981. "Contractual Provisions, Organizational Structure, and Conflict Control in Insurance Markets," The Journal of Business, University of Chicago Press, vol. 54(3), pages 407-34, July.
  7. Gur Huberman & David Mayers & Clifford W. Smith Jr., 1983. "Optimal Insurance Policy Indemnity Schedules," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 415-426, Autumn.
  8. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  9. William B. Fairley, 1979. "Investment Income and Profit Margins in Property-Liability Insurance: Theory and Empirical Results," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 192-210, Spring.
  10. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  11. Thaler, Richard H, 1988. "Anomalies: The Winner's Curse," Journal of Economic Perspectives, American Economic Association, vol. 2(1), pages 191-202, Winter.
  12. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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