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The Reasonable Person Negligence Standard and Liability Insurance
Article first published online: 5 NOV 2008
DOI: 10.1111/j.1539-6975.2008.00286.x
© The Journal of Risk and Insurance, 2008
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How to Cite
Bajtelsmit, V. and Thistle, P. D. (2008), The Reasonable Person Negligence Standard and Liability Insurance. Journal of Risk and Insurance, 75: 815–823. doi: 10.1111/j.1539-6975.2008.00286.x
Publication History
- Issue published online: 5 NOV 2008
- Article first published online: 5 NOV 2008
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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.