Re: AltInst: Legislation insurance

Robin Hanson stated:

>Insurance does not have to cover every possible contingency to be valuable.
>And the policy contract can be made elsewhere on the planet, where courts
>won't much care about local public policy.
>
This is a good point. None the less, I am not really convinced that most
political risks are effectively insurable (i.e. that the cost of the
insurance is so high as to make the transaction uneconomical.)

In theory, if there is an identifiable risk of something happening,
accountants are supposed to set up a contingent liability to account for
this risk. (Obvious examples including pending law suits and the like.)
It is not uncommon for companies to "self insure" by putting aside funds
which are restricted in their use to only be used to pay the losses.

It presents an interesting question as to whether accountants would permit
self insurance (taking contributions to the fund as expenses) for political
risks within the U.S. Certainly, recognizing contingent liabilities for
anticipated bad legislation in foreign companies is acceptable.

George O'Brien

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Received on Mon May 4 13:36:00 1998