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Risk-Neutrality and Strategic Insurance

Roland Kirstein

No 99-02, CSLE Discussion Paper Series from Saarland University, CSLE - Center for the Study of Law and Economics

Abstract: The paper shows that Legal Cost Insurance (LCI) is a device to enhance potential litigants? bargaining position rather than to re-allocate risk. Being insured decreases the cost an insured party has to bear if settlement negotiations fail and the case goes to trial. This shifts the threat points, which has an impact on the bargaining result. In negative expected value suits, LCI can make the threat to sue credible and motivate potential defendants to make positive settlement offers. Hence, even risk-neutral agents may find it beneficial to insure.

Keywords: Civil Procedure; Bargaining; Settlement; Negative Expected Value Suits (search for similar items in EconPapers)
JEL-codes: G22 K41 (search for similar items in EconPapers)
Date: 1999
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Journal Article: Risk Neutrality and Strategic Insurance (2000) Downloads
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