Why Corporations Insure

Louis De Alessi

Economic Inquiry, 1987, vol. 25, issue 3, 429-38

Abstract: Corporations insure to reduce the shirking-information problem of joint production. Insurance encourages specialization in ownershi p, increasing the returns to monitoring and lowering shareholders' de mand for a more diversified portfolio. It enhances the credibility of specific capital as a performance bond, and it lowers the cost to sh areholders of compensating other members of the team for investing in firm-specific assets. Tax and other factors may further encourage in dividual corporations to insure. Copyright 1987 by Oxford University Press.

Date: 1987
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