Negligence, Ignorance and the Demand for Liability Insurance

29 Pages Posted: 11 Jun 2007

See all articles by Vickie L. Bajtelsmit

Vickie L. Bajtelsmit

Colorado State University, Fort Collins

Paul D. Thistle

University of Nevada, Las Vegas - Department of Finance

Date Written: June 6, 2007

Abstract

This paper considers whether lack of information regarding risk exposures can lead to a demand for negligence liability insurance. We find that, under the uniform negligence rule, any demand for liability insurance must come from informed individuals. The group whose privately optimal level of care is below the negligence standard may find it less costly to be negligent and purchase insurance. Under the individualized negligence rule, the demand for insurance, if any, comes from rationally ignorant individuals, and the information disclosure environment is a critical determinant of whether there is a demand for liability insurance or not.

Keywords: information, tort, moral hazard, screening

JEL Classification: G22, D82, K13

Suggested Citation

Bajtelsmit, Vickie L. and Thistle, Paul D., Negligence, Ignorance and the Demand for Liability Insurance (June 6, 2007). Available at SSRN: https://ssrn.com/abstract=991886 or http://dx.doi.org/10.2139/ssrn.991886

Vickie L. Bajtelsmit

Colorado State University, Fort Collins ( email )

Fort Collins, CO 80523-1771
United States

Paul D. Thistle (Contact Author)

University of Nevada, Las Vegas - Department of Finance ( email )

4505 S. Maryland Parkway
Las Vegas, NV 89154
United States
702-895-3856 (Phone)
702-895-4650 (Fax)

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