Negligence, Ignorance and the Demand for Liability Insurance

Vickie Bajtelsmit () and Paul Thistle ()
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Vickie Bajtelsmit: Department of Finance and Real Estate, Colorado State University, Ft. Collins, CO 80523, USA.
Paul Thistle: Department of Finance, University of Nevada Las Vegas, Las Vegas, NV 89154, USA.

The Geneva Risk and Insurance Review, 2009, vol. 34, issue 2, 105-116

Abstract: This paper considers whether lack of information regarding risk exposures can lead to a demand for negligence liability insurance. We find that, under the uniform negligence rule, such as the “reasonable person” standard used to determine negligence in the U.S. and other countries, the value of information is positive and any demand for liability insurance must come from informed individuals. The necessary and sufficient condition is that good risks find it less costly to be negligent and purchase insurance.

Date: 2009
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