Minimum Asset Requirements

Steven Shavell ()

No 9335, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Requirements that parties have assets of at least a minimum level in order to participate in an activity are frequently imposed. A principal rationale for minimum asset requirements is considered in this article potential injurers have stronger incentives to prevent harm, or not to engage in harmful activities, provided that they have at least the required level of assets at stake if they are sued for causing harm. The optimal minimum asset requirement generally reflects a tradeoff between this advantage and the disadvantage that some parties with assets below a required level ought to engage in the activity (because the benefits they would obtain exceed the expected harm they would cause). Additionally, it is emphasized that minimum asset requirements are socially desirable only when the victims of harm are not customers of firms. When victims of harm are customers of firms, minimum asset requirements are socially undesirable.

JEL-codes: G28 K13 (search for similar items in EconPapers)
Date: 2002-11
New Economics Papers: this item is included in nep-cfn and nep-law
Note: LE
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Citations: View citations in EconPapers (5)

Published as Shavell, Steven. "Minimum Asset Requirements And Compulsory Liability Insurances As Solutions To The Judgment-Proof Problem," Rand Journal of Economics, 2005, v36(1,Spring), 63-77.

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