ABSTRACT
This paper examines the impact of insurance on the liability system, building on the realistic assumption that parties are risk-averse and that private insurance is costly. These factors increase the value of precaution for the parties involved. Under a negligence rule, risk aversion and the high cost of insurance justify raising the standard of care. Under strict liability, risk aversion and costly insurance on the victim s side require an increase in damage awards.
Franzoni, Luigi Alberto, Efficient Liability Law with Costly Insurance. Posted to SSRN 3 April 2025.
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