Minimum asset and liability insurance requirements on judgment-proof individuals when harm is endogenous

Chulyoung Kim, Paul S. Koh

Research output: Contribution to journalReview article

Abstract

Shavell (2005) studied the optimality of minimum asset requirements within a frame-work in which individuals can influence the probability of an accident. We reinvestigate Shavell's model for the opposite accident scenario, in which individuals can influence the magnitude of harm, and find different policy implications. In particular, we show that it could be optimal to completely ban judgment-proof individuals from participating in a potentially harmful activity. We alsoexamine the effect of liability insurance, and find that regulatory authorities should tighten standards relative tothe pure asset requirement and that liability insurance increases social welfare.

Original languageEnglish
Pages (from-to)141-161
Number of pages21
JournalHitotsubashi Journal of Economics
Volume60
Issue number2
DOIs
Publication statusPublished - 2019

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting(all)
  • Economics and Econometrics

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