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Public authority liability and the cost of disasters

Jef Mot () and Michael Faure ()
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Jef Mot: Hasselt University
Michael Faure: Maastricht University and Erasmus University

The Geneva Papers on Risk and Insurance - Issues and Practice, 2019, vol. 44, issue 4, 760-783

Abstract: Abstract We examine the influence of introducing public authority liability in the context of disasters. In an ideal setting a rule of comparative negligence would incentivise the government to take an optimal amount of care. The citizen, being the residual bearer of the loss, would consequently also take optimal care. However, in the specific context of disasters, public authority liability may backfire and lead to more losses than without such liability. We argue that under some circumstances perverse incentives of citizens may increase with liability. We focus inter alia on (1) the difficulties that may exist to incentivise public authorities through liability rules, (2) the specific characteristics of comparative negligence that may make public authorities liable for the lion’s share of the damages, (3) the problem of negative expected value suits and (4) the fact that public authorities may be much more inclined to intervene ex post when damages exceed a threshold.

Keywords: Public authority liability; Disaster insurance; Comparative negligence; Negative expected value suits (search for similar items in EconPapers)
Date: 2019
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