Center for Advanced Management




Prof. Patricia H. Born (California State University)



  • Date: 28.2.2008
    Time: 12.15
    Location: Room 307, Schackstr. 4, 3. OG

The Relationship between Liability Costs and Government Health Spending

Liability insurance is one of the primary mechanisms for compensating individuals who are injured in auto accidents, by products, and in a variety of other settings. An injured individual’s propensity to seek compensation through the legal system depends on his or her expected payoff and access to other sources of compensation. A justification for social health programs that provide for compensation of injured parties is the potential for such compensation to reduce the need for victims to seek compensation in the legal system. If such programs serve as substitutes for the legal system as sources of compensation, then we would expect that as spending on these programs decreases, liability costs will increase, and vice versa. Using state-level data for the U.S., and provincial-level data for Canada, we evaluate the relationship between government health care spending and liability insurance costs and find evidence of a substitute relationship in both countries. Information that substantiates a connection between these sources will be useful in public assistance decision-making.