Liability Insurance: Equilibrium Contracts under Monopoly and Competition
研究了责任保险在诉讼谈判中为被告创造杠杆效应，分析了垄断和竞争市场下保险合同的均衡特征，发现逆向选择导致低风险类型投保不足，高风险类型可能低效诉讼。
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.