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Liability Insurance under the Negligence Rule

Marie-Cecile Fagart and Claude Fluet ()

Cahiers de recherche from CIRPEE

Abstract: We analyze the efficiency properties of the negligence rule with liability insurance, when the tort-feasor's behavior is imperfectly observable both by the insurer and the court. Efficiency is shown to depend on the extent to which the evidence is informative, on the evidentiary standard for finding negligence, and on whether insurance contracts can condition directly on the same evidence as used by courts to assess behavior. When evidence is not directly contractible, the negligence rule with compensatory damages is generally inefficient and can be improved by decoupling liability from the harm suffered by the victim.

Keywords: Negligence; liability insurance; evidentiary standard; moral hazard; judicial error; decoupling; prudence (search for similar items in EconPapers)
JEL-codes: D82 K41 K42 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ias and nep-law
Date: 2007
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Journal Article: Liability insurance under the negligence rule (2009) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:lvl:lacicr:0730

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