We offer a novel explanation of underwriting volatility in property-liability insurance markets in terms of private uncertainty over public regulatory policy. Underwriting involving random losses to policyholders is one source of risk to the equity value of insurance firms. Solvency regulations,...

This paper examines the two-way relationship between managerial compensation and corporate risk by exploiting an unanticipated change in firms' business risks. The natural experiment provides an opportunity to examine two classic questions related to incentives and risk — how boards adjust...

In the law and economics literature the question of efficiency of liability rules has primarily been analyzed in the context of two-party interactions in which identities of the victim and the injurer in case of occurrence of accident, are a priori certain. The main conclusion that has emerged...

Insurance ideas inform legal thought: from tort law, to health law, to theories of distributive justice. Within legal thought, insurance is often conceived as an ideal type in which insurers distribute determinable risks through contracts that fix the parties' obligations in advance. This ideal...

This paper develops an original mean-variance model able to capture the disposition of the parties towards both standard risk and ambiguity. Ambiguity arises when the causal link between conduct and harm is not univocal, as is frequently the case with toxic torts. Risk aversion and ambiguity...

The 2014 GM ignition switch recall highlighted the inadequacies of the company's safety culture and the shortcomings of regulatory sanctions. The company's inattention to systematic thinking about product safety can be traced to the hostile treatment of corporate risk analyses by the courts....

I investigate how different legal regimes affect auditor's effort and investors' investment decisions when the auditor is subject to probability weighting and loss aversion, which are two important characteristics of Prospect Theory. Probability weighting encourages an auditor to overrate the...

Modern society mitigates and transfers risks in a variety of ways, which range from catastrophe prevention and insurance solutions through to injustices of a minor and inconspicuous nature. We illustrate that the measures taken depend on the uncertainty about the risks in question, and involve...

In a hand-coded sample of M&A contracts from 2007-08, risk allocation provisions exhibit wide variation. Earn-outs are the least common means to allocate risk, indemnities are most common, followed by price adjustment clauses. Techniques for mitigating enforcement costs – escrows, holdbacks,...

In this paper, we argue that the joint use of ex-ante regulation and ex-post liability rules is efficient when there are uncertainty surrounding causal investigations and regulatory myopia. As these conditions are generally met in environmental cases, we provide an explanation for the frequent...