Comments on paper by Michael Faure

Published date15 August 2002
Date15 August 2002
AuthorJames Boyd
James Boyd
My comments are limited to a small set of areas that I think deserve some
further clarification.
First, I think that it is imperative to make clear the important difference
between mandatory and voluntary insurance. If cost internalization (compensa-
tion) and deterrence are the policy goal, it is most natural to think of insurance
- normatively - as being mandatory. Voluntary insurance, if cost internalization
is the goal, cannot be counted on to get the job done. (Voluntary insurance being
geared toward utility improvements in the presence of risk aversion, when
risks are borne by the insuring party themselves.) The firms most at risk of
externalizing costs will also be the firms least likely to voluntarily self-insure,
since the costs of insurance will be highest for them. (I think Michael is
familiar with my views on this subject. And to be clear, I am not angling for a
reference to my views. I do think, however, that a clearer contrast or acknowl-
edgment of the differences in motivation for mandatory vs. voluntary insurance
should be provided up front in the paper).
Second, I found the distinction between first-party insurance and "direct
insurance" to be somewhat muddy - early in the paper. Also, the paper's real
focus is on the "direct" mechanism so that should be the focus of the
Third, in the discussion of the Dutch approach, and the "direct approach"
generally, it is unclear what the real benefit of this system is to the insured.
From the U.S. perspective, it is hard to see how eliminating the
liability standards would be an improvement. An improvement arises for them
An Introduction to the Law and Economics of Environmental Policy: Issues in Institutional
Design, Volume 20, pages 329--330.
© 2002 Published by Elsevier Science Ltd.
ISBN: 0-7623-0888-5

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