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The Reasonable Person Negligence Standard and Liability Insurance
Author(s) -
Bajtelsmit Vickie,
Thistle Paul D.
Publication year - 2008
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2008.00286.x
Subject(s) - actuarial science , liability insurance , business , liability , auto insurance risk selection , contributory negligence , insurance policy , standard of care , strict liability , casualty insurance , reasonable person , economics , tort , law , finance , medicine , political science , surgery
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.