Insurance hedging in the theory of the firm

Luc L. Grillet

No 166, Discussion Papers, Series II from University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy"

Abstract: This paper focuses on the costs of limited liability in the theory of the firm. Insurance may discourage the opportunistic externalization of those costs in a way that enhances optimal risk allocation for corporate stakeholders. The paper hypothesizes that insurance will enable the firm to exploit more fully the quasi-rents associated with the profitable use of its organizational capital. At a critical level of insurability, internal coordination of the insurance function by common or joint ownership might enhance the credibility of the firm's organizational capital better than market insurance would do.

Date: 1991
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:kondp2:166

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