This paper attempts to identify moral hazard in the traditional reinsurance market. We build a multi-period principle agent model of the reinsurance transaction from which we derive predictions on premium design, monitoring, loss control and insurer risk retention. We then use panel data on U.S....

If people take due care, they will not be found negligent under the Rule of Simple Negligence. Moreover, under this rule, investment in due care is privately and socially optimal. These results jointly imply that liability insurance should not exist. But it does. One explanation relies on errors...