The Reasonable Person Negligence Standard and Liability InsuranceJournal of Risk and InsuranceBajtelsmit, V. L. and Thistle, P. A.
2008
Authors from the College of Business:
Bajtelsmit, Vickie
This paper shows 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. The availability of insurance is also shown to be socially desirable.