Cohen, Lloyd R.; Boardman, Michelle E. --- "Methodology: Applying Economics to Insurance Law – An Introduction" [2012] ELECD 156; in Burling, Julian; Lazarus, Kevin (eds), "Research Handbook on International Insurance Law and Regulation" (Edward Elgar Publishing, 2012)

Book Title: Research Handbook on International Insurance Law and Regulation

Editor(s): Burling, Julian; Lazarus, Kevin

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781849807883

Section: Chapter 2

Section Title: Methodology: Applying Economics to Insurance Law – An Introduction

Author(s): Cohen, Lloyd R.; Boardman, Michelle E.

Number of pages: 14

Extract:

2 Methodology: applying economics to insurance
law ­ an introduction
Lloyd R. Cohen and Michelle E. Boardman



Insurance is fundamentally an economic activity. It is artificial to attempt to separate the
law of insurance from the economics of it.1 This chapter applies the sub-discipline of law
and economics to questions of insurance and insurance law. While we hope that all
readers will have heard of this approach, we suspect that many harbor mistaken assump-
tions about it. So we shall briefly try to provide a broad overview and a context in which to
place it.
In a fundamental sense law and economics is nothing new ­ and this is what explains its
great success. Scholars of the law ­ certainly in the English tradition ­ have always been
concerned with three questions seen as central to the law and economics enterprise. First,
what is the effect of a given law? How will people behave in response to it? For example,
what would be the likely response of rapists to a law permitting or mandating capital
punishment for this offense? Would such a law provide an incentive for a rapist to kill his
victim and thereby eliminate the principle witness to the crime? In the language of
economics this represents a concern about maintaining `marginal deterrence'. Second,
what should the law be? By some metric of the good, the just, the salutary what law will
maximize the maximand? Here we have the dual questions of determining the proper goal
­ perhaps aggregate social wealth ­ ...