Minimum Asset Requirements and Compulsory Liability Insurance as Solutions to the Judgment-Proof Problem

Steven Shavell ()
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Steven Shavell: Harvard Law School

RAND Journal of Economics, 2005, vol. 36, issue 1, 63-77

Abstract: Minimum asset and liability insurance requirements must often be met in order for parties to participate in potentially harmful activities. Such financial responsibility requirements may improve parties' decisions whether to engage in harmful activities and, if so, their efforts to reduce risk. However, the requirements may undesirably prevent some parties with low assets from engaging in activities. Liability insurance requirements tend to improve incentives to reduce risk when insurers can observe levels of care but dilute incentives when they cannot observe levels of care. In the latter case, compulsory liability insurance may be inferior to asset requirements.

Keywords: Criteria for Decision-Making under Risk and Uncertainty Insurance; Insurance Companies Insurance; Risk (search for similar items in EconPapers)
JEL-codes: D81 G22 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (26)

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