Center for Law and Economic Studies
Center for Contract and Economic Organization
Despite the fact that public corporations ought to be risk neutral, they often carry insurance. This note first considers why insurance (or, more precisely, the package of services provided by insurance companies) might create value, regardless of the risk preferences of managers, shareholders, or other corporate stakeholders. One motive is that their contractual counter parties-buyers, lessors, and lenders - require that they carry insurance. Two explanations for why the requirement might be value enhancing are proposed.
Victor P. Goldberg,
The Devil Made Me Do It: The Corporate Purchase of Insurance,
Columbia Law and Economics Working Paper No. 346
Available at: https://scholarship.law.columbia.edu/faculty_scholarship/1571