Deterrence by Insurance
Start Page
239
Abstract
Against the theory of third-party moral hazard—focusing on third parties who decline their risk-reducing effort in light of insurance—I analyze the mirror-image phenomenon of third-party deterrence: cases in which third parties engage in activities designed to counterbalance the insured’s moral hazard. I characterize the settings in which third-party deterrence replaces third-party moral hazard; address the economic foundations of this problem; and study its effects on risk transferring within the triangle of insurer, insured, and third parties. I also point to additional frameworks that may give rise to third-party deterrence, discuss possible implications for the incentives of insurers, and identify countervailing forces that may alleviate the ascribed distortion.
Recommended Citation
Baharad, Roy
(2025)
"Deterrence by Insurance,"
Journal of Legal Studies: Vol. 54:
No.
1, Article 7.
Available at:
https://chicagounbound.uchicago.edu/jls/vol54/iss1/7
