Liability Insurance: Equilibrium Contracts under Monopoly and Competition

• 成果类型: Article
• 署名作者: Lemus, Jorge; Temnyalov, Emil; Turner, John L.
• 署名单位: University of Illinois System; University of Illinois Urbana-Champaign; University of Technology Sydney; University System of Georgia; University of Georgia
• 刊物名称: AMERICAN ECONOMIC JOURNAL-MICROECONOMICS
• ISSN/ISSBN: 1945-7669
• DOI: 10.1257/mic.20180245
• 发表日期: 2021
• 页码: 83-115
• 关键词: Adverse selection; patent litigation; contingent fees; moral hazard; MARKETS; INFORMATION; settlement; ECONOMICS; DESIGN; FAITH

摘要

In liability lawsuits (e.g., patent infringement), a plaintiff demands compensation from a defendant, and the parties often negotiate a settlement to avoid a costly trial. Liability insurance creates bargaining leverage for the defendant in this settlement negotiation. We study the characteristics of monopoly and equilibrium contracts in settings where this leverage effect is a substantial source of value for insurance. Our results show that under adverse selection, a monopolist offers at most two contracts, which underinsure low-risk types and may inefficiently induce high-risk types to litigate. In a competitive market, only a pooling equilibrium with underinsurance may exist.