TITLE
"The Strategic Role of Insurance: The Warranty Case," Journal of Insurance Issues, S. Hun Seog, Spring 2006, Vol. 29, No. 1, pp. 33-50. Full-text articles soon will be available through ABI/INFORM and EBSCO; click here for article PDF. 

ABSTRACT
We consider a model in which risk-neutral firms purchase liability insurance
to guarantee their warranty policies. We show that the firms that have no problem in
fulfilling their warranty policies have strong incentives to purchase liability insurance.
Firms purchase insurance because doing so enhances their competitive powers. This
paper complements the literature on corporate demand for insurance by emphasizing
the strategic role of insurance. This paper is also related to the literature on the demand
for liability insurance under the negligence rule. We show that firms may purchase
liability insurance according to their strategic purpose, even though they take due care
under the negligence rule.

Key words: Strategy, insurance demand, warranty, adverse selection, negligence rule.

JEL Classification: D43, D82, G22