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On the Judgment Proof Problem

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  • Richard MacMinn

    (College of Business, Illinois State University, Normal, IL 61790, USA, e-mail: macminn@exchange.cob.ilsta.edu)

Abstract

A party who causes harm to others and is found legally liable but cannot fully pay is said to be judgment proof. When the party who causes the harm is judgment proof, the incentives provided by the negligence and strict liability rules diverge. The payment probabilities implied by the two rules also differ. If the cost of care is non-monetary, as in Shavell's analysis, then the different probabilities generated by the two rules and the injurer's risk aversion combine to show that greater care is optimal under the negligence rule than the strict liability rule. If, however, the cost of care is monetary then the difference in probabilities generated by the two rules suffices to show greater care under the strict liability rule than under the negligence rule. The latter case holds for either a risk averse injurer or a corporate injurer. The Geneva Papers on Risk and Insurance Theory (2002) 27, 143–152. doi:10.1023/A:1021900910310

Suggested Citation

  • Richard MacMinn, 2002. "On the Judgment Proof Problem," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 27(2), pages 143-152, December.
    • Handle: RePEc:pal:genrir:v:27:y:2002:i:2:p:143-152
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    Citations

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    Cited by:

    1. Tim Friehe, 2008. "On judgment proofness in the case of bilateral harm," European Journal of Law and Economics, Springer, vol. 26(2), pages 175-185, October.
    2. Dari-Mattiacci, Giuseppe & De Geest, Gerrit, 2006. "When will judgment proof injurers take too much precaution?," International Review of Law and Economics, Elsevier, vol. 26(3), pages 336-354, September.
    3. MacMinn, Richard & Richter, Andreas, 2018. "The choice of trigger in an insurance linked security: The mortality risk case," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 174-182.
    4. G.G.A. de Geest & G. Dari Mattiacci, 2005. "Soft Regulators, tough judges," Working Papers 05-06, Utrecht School of Economics.
    5. Nicolas Lampach & Sandrine Spaeter, 2016. "The Efficiency of (strict) Liability Rules revised in Risk and Ambiguity," Working Papers of BETA 2016-29, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Giuseppe Dari‐Mattiacci & Barbara M. Mangan, 2008. "Disappearing Defendants versus Judgment‐Proof Injurers," Economica, London School of Economics and Political Science, vol. 75(300), pages 749-765, November.
    7. Tim Friehe, 2007. "A note on judgment proofness and risk aversion," European Journal of Law and Economics, Springer, vol. 24(2), pages 109-118, October.
    8. MacMinn, Richard & Richter, Andreas, 2006. "Hedging Brevity Risk with Mortality-based Securities," Discussion Papers in Business Administration 1219, University of Munich, Munich School of Management.
    9. David Blake & Marco Morales & Richard MacMinn & Patrick Brockett, 2017. "Special Edition: Longevity 10 – The Tenth International Longevity Risk and Capital Markets Solutions Conference," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 84(S1), pages 299-317, April.
    10. van 't Veld, Klaas & Hutchinson, Emma, 2009. "Excessive spending by firms to avoid accidents: Is it a concern in practice?," International Review of Law and Economics, Elsevier, vol. 29(4), pages 324-335, December.

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