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Risk Neutrality and Strategic Insurance

Author

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  • Roland Kirstein

    (Center for the Study of Law and Economics, Universitat des Saarlandes, D-66041 Saarbrucken)

Abstract

The paper shows that Legal Cost Insurance (LCI) is a device to enhance potential litigants? bargaining position rather than to re-allocate risk. Being insured decreases the cost an insured party has to bear if settlement negotiations fail and the case goes to trial. This shifts the threat points, which has an impact on the bargaining result. In negative expected value suits, LCI can make the threat to sue credible and motivate potential defendants to make positive settlement offers. Hence, even risk-neutral agents may find it beneficial to insure.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Roland Kirstein, 2000. "Risk Neutrality and Strategic Insurance," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 25(2), pages 251-261, April.
  • Handle: RePEc:pal:gpprii:v:25:y:2000:i:2:p:251-261
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    Citations

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    Cited by:

    1. Anne Duchêne, 2015. "Patent Litigation Insurance," Working Papers 2015-621, Department of Research, Ipag Business School.
    2. Kirstein, Roland, 2004. "Anti-Teilen in Teams," CSLE Discussion Paper Series 2004-04, Saarland University, CSLE - Center for the Study of Law and Economics.
    3. Roland Kirstein & Neil Rickman, 2004. ""Third Party Contingency" Contracts in Settlement and Litigation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 160(4), pages 555-555, December.
    4. Benito Arruñada, 2001. "The role of title insurance under recording and registration," Economics Working Papers 565, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 2002.
    5. Arrunada, Benito & Garoupa, Nuno, 2005. "The Choice of Titling System in Land," Journal of Law and Economics, University of Chicago Press, vol. 48(2), pages 709-727, October.
    6. Heyes, Anthony & Rickman, Neil & Tzavara, Dionisia, 2004. "Legal expenses insurance, risk aversion and litigation," International Review of Law and Economics, Elsevier, vol. 24(1), pages 107-119, March.
    7. Buzzacchi, Luigi & Scellato, Giuseppe, 2008. "Patent litigation insurance and R&D incentives," International Review of Law and Economics, Elsevier, vol. 28(4), pages 272-286, December.
    8. Mattiacci, Giuseppe Dari & Parisi, Francesco, 2003. "The cost of delegated control: vicarious liability, secondary liability and mandatory insurance," International Review of Law and Economics, Elsevier, vol. 23(4), pages 453-475, December.
    9. Kirstein, Roland & Gerhard, Hans, 2005. "The "Rainmaker's Dilemma": Bad Debt Loss Insurance in Settlement and Litigation," CSLE Discussion Paper Series 2005-02, Saarland University, CSLE - Center for the Study of Law and Economics.
    10. Kirstein, Roland & Rickman, Neil, 2001. "FORIS contracts: Litigation Cost Shifting and Contingent Fees in Germany," CSLE Discussion Paper Series 2001-04, Saarland University, CSLE - Center for the Study of Law and Economics.
    11. Qiao Yue, 2010. "Legal-Expenses Insurance and Settlement," Asian Journal of Law and Economics, De Gruyter, vol. 1(1), pages 1-19, July.
    12. Kirstein Annette & Kirstein Roland & Gerhard Hans, 2010. "Bad Debt Loss Insurance in Settlement and Litigation," Review of Law & Economics, De Gruyter, vol. 6(1), pages 107-124, May.
    13. Qiao, Yue, 2013. "Legal effort and optimal legal expenses insurance," Economic Modelling, Elsevier, vol. 32(C), pages 179-189.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • K41 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Litigation Process

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