Mitigation and Transfer of Risks: Prevention, Insurance, and Limited Liability

Abstract

Modern society mitigates and transfers risks in a variety of ways, which range from catastrophe prevention and insurance solutions through to injustices of a minor and inconspicuous nature. We illustrate that the measures taken depend on the uncertainty about the risks in question, and involve three trade-offs: innovation vs. risk avoidance; liability vs. collective risk sharing; and equity vs. practicable claims settlement. We study two highly instructive examples: nuclear liability and the measures taken in the wake of the 9/11 terrorist attack.