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

Chulyoung Kim and Paul S. Koh
Additional contact information
Paul S. Koh: Columbia University

No 2018rwp-135, Working papers from Yonsei University, Yonsei Economics Research Institute

Abstract: Minimum asset requirements are an increasingly common form of regulation intended to motivate better decision making by individuals who participate in potentially harmful ac- tivities. Shavell (2005) studied the optimality of this type of regulation within a framework in which an individual can influence the probability of an accident but not the magnitude of the resultant harm. We reinvestigate Shavell's model for the opposite accident scenario, in which an individual can influence the magnitude of harm but not the probability of an accident, and find policy implications different than Shavell's. In particular, we show that in certain situations it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We also examine the effect of liability insurance, and find that regulatory authorities should tighten standards relative to the pure asset requirement and that liability insurance increases social welfare.

Keywords: minimum asset requirement; liability insurance; judgment proof; endogenous harm. (search for similar items in EconPapers)
JEL-codes: G28 K13 K20 L51 (search for similar items in EconPapers)
Pages: 23pages
Date: 2018-10
New Economics Papers: this item is included in nep-ias
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Journal Article: Minimum Asset and Liability Insurance Requirements on Judgment-Proof Individuals When Harm is Endogenous (2019)
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