Discussion of: “The Reasonable Person Negligence Standard and Liability Insurance” By: Vickie Bajtelsmit Colorado State University Paul Thistle University of Nevada-Las Vegas Discussed by: Joseph S. Ruhland Georgia Southern University

Objective To develop a theoretical framework which motivates the purchase of liability insurance in the absence of: –Legal obligation –Contractual obligation –Uncertainty of legal system –Momentary lapses in level of care –Uncertainty surrounding actions of agents

Heterogeneity as a Motivating Factor Authors show that differences in risk levels of and cost of care for potential injurers motivates the purchase of liability insurers for those potential injurers with relatively lower probabilities of accidents and for those with relatively higher optimal costs of care.

Comments Thoughtfully written Succinct Potential for application in empirical work –Insurer redlining - examination of demand effects rather than supply effects

Question The paper states one aspect of the social benefit of insurance is the ability for victims to be compensated for their injuries. –From the assumptions, it is stated that: Initial wealth is strictly greater than damages, therefore injurers are not judgment-proof. (w > d) Victims are risk-neutral Victims always sue Litigation costs are zero Courts always issue the correct judgment based on the appropriate level of care required (i.e. The Hand Rule is applied correctly.)

Question Does the social benefit for the potential victim derive from the possibility of d + x G * > w; thus leaving the injurer effectively judgment-proof (at least partially) in the absence of insurance?