Institutions perverse

Liability insurance is compulsory in the Netherlands only for motorists, nuclear power plants, oil tankers, medical research involving human subjects (not only businesses but also universities and other research institutions) and hunters. Businesses do take out liability insurance for other reasons, for example because they are required to do so under a permit or because the bank financing them demands it. It is conceivable that a business may want more substantial liability coverage after appraising its risks, but that the statutory obligation acts as a perverse incentive, causing it to insure itself only for the minimum amount. 

Hansen, R. and Papademetriou, D. (2013) Securing Borders The Intended, Unintended, and Perverse Consequences. Pp. 3-22 in R. Hansen and D. Papademetriou (eds.). Managing Borders in an Increasingly Borderless World. Washington, DC Brookings Institution Press. 

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