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

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  • Kim, Chulyoung
  • Koh, Paul S.

Abstract

Shavell (2005) studied the optimality of minimum asset requirements within a frame-work in which individuals can influence the probability of an accident. We reinvestigate Shavellʼs model for the opposite accident scenario, in which individuals can influence the magnitude of harm, and find different policy implications. In particular, we show that it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We alsoexamine the effect of liability insurance, and find that regulatory authorities should tighten standards relative tothe pure asset requirement and that liability insurance increases social welfare.

Suggested Citation

  • Kim, Chulyoung & Koh, Paul S., 2019. "Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 60(2), pages 141-161, December.
    • Handle: RePEc:hit:hitjec:v:60:y:2019:i:2:p:141-161
    DOI: 10.15057/30888
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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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