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Article: The reasonable person negligence standard and liability insurance.
- Article from:
- Journal of Risk and Insurance
- Article date:
- December 1, 2008
- Author:
CopyrightCOPYRIGHT 2008 American Risk and Insurance Association, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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ABSTRACT
We show that, under the reasonable person negligence rule, heterogeneity of potential injurers can be sufficient to create a demand for liability insurance. Potential injurers with a low probability of accidents or a high cost of exercising care have optimal levels of care that are below the negligence standard. For these groups, it may be less costly to be negligent and purchase insurance than to comply with the negligence standard. We show that the availability of insurance is socially desirable.
INTRODUCTION
The purpose of this article is to provide a possible explanation for why individuals purchase liability insurance under a ...