Journal of Economic Perspectives: Vol. 5 No. 3 (Summer 1991)


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The Liability Insurance Market

Article Citation

Winter, Ralph A. 1991. "The Liability Insurance Market." Journal of Economic Perspectives, 5(3): 115-136.

DOI: 10.1257/jep.5.3.115


This paper offers an overview of the U.S. liability insurance market and the link between its performance and developments in tort law. Over the last few decades, the dominant feature of the insurance market has been the insurance cycle: intermittent periods of rapidly rising premiums and cutbacks on the availability of coverage. The insurance cycle appears to be increasing in amplitude and, since the 1960s, has been concentrated increasingly in liability lines. The dynamic behavior of the insurance market can be fully explained in a model that emphasizes uncertainty and informational asymmetries, as outlined in this paper. I conclude the paper with a discussion of some policy implications as well as the impact of liability insurance on the incentive role, as opposed to the insurance role, of the tort system.

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Winter, Ralph A. (U Toronto)

JEL Classifications

G22: Insurance; Insurance Companies
K13: Tort Law and Product Liability


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