Research Handbook on the Economics of Insurance Law
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Research Handbook on the Economics of Insurance Law

Edited by Daniel Schwarcz and Peter Siegelman

Insurance law and insurance economics each have long and distinguished scholarly histories, but participants in the two disciplines have not always communicated well across academic silos. The Handbook encourages more policy-relevant insurance economics scholarship and more economically sophisticated legal scholarship by bringing together original contributions from leading scholars in insurance law and insurance economics on a range of issues involving insurance law and regulation.
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Chapter 11: Mandatory rules and default rules in insurance contracts

Tom Baker and Kyle D. Logue


In the economic analysis of contracts, the rules of contract law divide into two general classes: default rules, which parties can alter by contract, and mandatory or immutable rules, which parties cannot alter (Ayres and Gertner 1989; Barnett 1992; Craswell 1999; Cohen 1999; Ayres 2012). According to this way of organizing the field, the essential normative issues similarly divide into two general questions: what substantive contract law rules are most efficient, and should those rules be mandatory or merely defaults? Insurance law raises these same questions. Although numerous scholars have examined the efficiency or inefficiency of particular substantive doctrines of insurance law, few scholars, and even fewer courts and policymakers, have considered whether and under what circumstances rules of insurance law should be default or mandatory and, if default, how they may be altered. Nor have they seriously examined how state administrative regulation of insurance forms might affect the answers to these questions. This chapter begins to fill these gaps in the literature. Section II provides a brief summary of the law and economics of contract, with special emphasis on the theoretical justifications for making some rules of contract law, or some terms in contracts, mandatory.

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