Scholarship (Affiliate)
Efficient Liability Law with Costly Insurance
Abstract
This paper examines the impact of insurance on the liability system, building on the realistic assumption that parties are risk-averse and that private insurance is costly. These factors increase the value of precaution for the parties involved. Under a negligence rule, risk aversion and the high cost of insurance justify raising the standard of care. Under strict liability, risk aversion and costly insurance on the victim’s side require an increase in damage awards.