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

Chulyoung Kim and Paul S. Koh

Hitotsubashi Journal of Economics, 2019, vol. 60, issue 2, 141-161

Abstract: Shavell (2005) studied the optimality of minimum asset requirements within a frame-work in which individuals can influence the probability of an accident. We reinvestigate Shavellʼs model for the opposite accident scenario, in which individuals can influence the magnitude of harm, and find different policy implications. In particular, we show that it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We alsoexamine the effect of liability insurance, and find that regulatory authorities should tighten standards relative tothe 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)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitjec:v:60:y:2019:i:2:p:141-161

DOI: 10.15057/30888

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