When Will Judgment Proof Injurers Take Too Much Precaution?
Abstract This article identifies the conditions under which potentially insolvent injurers over-invest in precaution. We show that this may happen only with respect to precautionary measures that reduce the probability of the accident. No such result occurs if precaution only reduces the magnitude of the harm. Contrary to the literature, we find that over-precaution may also occur when precaution is non-monetary. The reason being is that over-precaution can not only be due to the implicit precaution-subsidy effect (the fact that care-taking reduces the injurerâ€™s exposure to liability when precaution is monetary) but also to a substitution effect between precaution that reduces the probability of accidents and precaution that reduces the magnitude of the harm. Finally, we find that when the injurerâ€™s wealth is sufficiently low, precautions may actually be lower when they are monetary than when they are non-monetary, despite the implicit precaution subsidy in the former case. Keywords: insolvency, judgement, liability, bankruptcy, over precaution
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +31 30 253 9800
Fax: +31 30 253 7373
Web page: http://www.uu.nl/EN/faculties/leg/organisation/schools/schoolofeconomicsuse/Pages/default.aspx
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-48, July-Aug..
- Schmitz, Patrick W., 2000.
"On the Joint Use of Liability and Safety Regulation,"
12536, University Library of Munich, Germany.
- Schmitz, Patrick W., 2000. "On the joint use of liability and safety regulation," International Review of Law and Economics, Elsevier, vol. 20(3), pages 371-382, September.
- Boyd, James & Ingberman, Daniel E, 1994. "Noncompensatory Damages and Potential Insolvency," The Journal of Legal Studies, University of Chicago Press, vol. 23(2), pages 895-910, June.
- Christian Gollier & Pierre-François Koehl & Jean-Charles Rochet, 1996. "Risk-Taking Behavior with Limited Liability and Risk Aversion," Center for Financial Institutions Working Papers 96-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Dionne, Georges & Eeckhoudt, Louis, 1985.
"Self-insurance, self-protection and increased risk aversion,"
Elsevier, vol. 17(1-2), pages 39-42.
- Dionne, G. & Eeckhoudt, L., 1984. "Self-Insurance, Self-Protection and Increased Risk Aversion," Cahiers de recherche 8424, Universite de Montreal, Departement de sciences economiques.
- DIONNE, George & EECKHOUDT, Louis, . "Self-insurance, self-protection and increased risk aversion," CORE Discussion Papers RP 623, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Boyd, James & Ingberman, Daniel E., 1999. "Do punitive damages promote deterrence?1," International Review of Law and Economics, Elsevier, vol. 19(1), pages 47-68, March.
- Shavell, S., 1986. "The judgment proof problem," International Review of Law and Economics, Elsevier, vol. 6(1), pages 45-58, June.
- Juan José Ganuza & Fernando Gómez, 2003. "Optimal negligence rule under limited liability," Economics Working Papers 759, Department of Economics and Business, Universitat Pompeu Fabra, revised May 2004.
- Richard MacMinn, 2002. "On the Judgment Proof Problem," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 27(2), pages 143-152, December.
- T. Randolph Beard, 1990. "Bankruptcy and Care Choice," RAND Journal of Economics, The RAND Corporation, vol. 21(4), pages 626-634, Winter.
- Thomas J. Miceli & Kathleen Segerson, 2001.
"A Note on Optimal Care by Wealth-Constrained Injurers,"
2002-44, University of Connecticut, Department of Economics, revised May 2002.
- Miceli, Thomas J. & Segerson, Kathleen, 2003. "A note on optimal care by wealth-constrained injurers," International Review of Law and Economics, Elsevier, vol. 23(3), pages 273-284, September.
- Kahan, Marcel, 1989. "Causation and Incentives to Take Care under the Negligence Rule," The Journal of Legal Studies, University of Chicago Press, vol. 18(2), pages 427-47, June.
- Giuseppe Dari-Mattiacci & Gerrit De Geest, 2005.
"Judgment Proofness under Four Different Precaution Technologies,"
Journal of Institutional and Theoretical Economics (JITE),
Mohr Siebeck, Tübingen, vol. 161(1), pages 38-, March.
- Guiseppe Dari Mattiaci & G.G.A. de Geest, 2003. "Judgement Proofness under Four Different Precaution Technologies," Working Papers 03-16, Utrecht School of Economics.
- Steven Shavell, 1983. "Liability for Harm Versus Regulation of Safety," NBER Working Papers 1218, National Bureau of Economic Research, Inc.
- Steven Shavell, 2002. "Minimum Asset Requirements," NBER Working Papers 9335, National Bureau of Economic Research, Inc.
- Rose-Ackerman, Susan, 1991. "Regulation and the Law of Torts," American Economic Review, American Economic Association, vol. 81(2), pages 54-58, May.
When requesting a correction, please mention this item's handle: RePEc:use:tkiwps:0427. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marina Muilwijk)
If references are entirely missing, you can add them using this form.