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The Reasonable Person Negligence Standard and Liability Insurance

Vickie Bajtelsmit and Paul D. Thistle

Journal of Risk & Insurance, 2008, vol. 75, issue 4, 815-823

Abstract: We show that, under the reasonable person negligence rule, heterogeneity of potential injurers can be sufficient to create a demand for liability insurance. Potential injurers with a low probability of accidents or a high cost of exercising care have optimal levels of care that are below the negligence standard. For these groups, it may be less costly to be negligent and purchase insurance than to comply with the negligence standard. We show that the availability of insurance is socially desirable.

Date: 2008
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https://doi.org/10.1111/j.1539-6975.2008.00286.x

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