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The Reasonable Person Negligence Standard and Liability Insurance

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  • Vickie Bajtelsmit
  • Paul D. Thistle

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.

Suggested Citation

  • Vickie Bajtelsmit & Paul D. Thistle, 2008. "The Reasonable Person Negligence Standard and Liability Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 75(4), pages 815-823, December.
    • Handle: RePEc:bla:jrinsu:v:75:y:2008:i:4:p:815-823
    DOI: 10.1111/j.1539-6975.2008.00286.x
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    References listed on IDEAS

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    1. Steven Shavell, 1982. "On Liability and Insurance," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 120-132, Spring.
    2. Shavell, Steven, 2007. "Do excessive legal standards discourage desirable activity?," Economics Letters, Elsevier, vol. 95(3), pages 394-397, June.
    3. repec:adr:anecst:y:2006:i:82:p:03 is not listed on IDEAS
    4. Ehrlich, Isaac & Becker, Gary S, 1972. "Market Insurance, Self-Insurance, and Self-Protection," Journal of Political Economy, University of Chicago Press, vol. 80(4), pages 623-648, July-Aug..
    5. Bond, Eric W & Crocker, Keith J, 1991. "Smoking, Skydiving, and Knitting: The Endogenous Categorization of Risks in Insurance Markets with Asymmetric Information," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 177-200, February.
    6. Marie-Cécile Fagart & Bidénam Kambia-Chopin, 2006. "Prevention in insurance markets," Annals of Economics and Statistics, GENES, issue 82, pages 55-70.
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    Cited by:

    1. Alice Guerra & Tobias M. Hlobil, 2018. "Tailoring Negligence Standards to Accident Records," The Journal of Legal Studies, University of Chicago Press, vol. 47(2), pages 325-348.
    2. Daniela Cagno & Daniela Grieco, 2023. "Insurance Choices and Sources of Ambiguity," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 9(1), pages 295-319, March.
    3. Vickie Bajtelsmit & Jennifer Coats & Paul Thistle, 2015. "The effect of ambiguity on risk management choices: An experimental study," Journal of Risk and Uncertainty, Springer, vol. 50(3), pages 249-280, June.

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