Update: Video of Prof. Fennell's talk is now embedded below the jump, or you may download an .mp3 or .mov file.
Suppose I am a utility-maximizing, risk-averse trophy husband/wife. Currently I have a generous monthly allowance, but due to a lack of foresight (or the blindness of love), I do not have a prenuptial agreement. There has been no trouble in the marriage yet, but what if things go south? Perhaps I should put part of my allowance toward premiums on divorce insurance, which one company now claims to offer. Previously, the initial allocation of divorce risk could not be altered; now, perhaps, it can. Whether risk can be reallocated is an issue that is present in far less tawdry situations than this example; in fact, it is everywhere.
On Wednesday, October 22, Professor Lee Fennell gave a talk entitled "Risk Reversals" as part of the Chicago's Best Ideas lecture series. (The first CBI presentation on October 1 was a fascinating talk by Mary Anne Case about "Why Evangelical Protestants are Right When They Say that State Recognition of Same-Sex Marriages Threatens Their Marriages and What the Law Should Do About It.")
The "stickiness" of risk allocations motivates Fennell's analysis. Many scholars have proposed new mechanisms
risk. Fennell's investigation, however, tackles the analysis at a different level; rather than ask whether any particular risk-shifting scheme is desirable, she asks how easy or difficult, given an initial allocation of risk, transacting away from that allocation should be. Buying life insurance is easy, but selling my ability to bring a tort claim if my spouse dies in an industrial accident is difficult. I must buy car insurance, but I cannot insure against damage claims from accidents that have already occurred (although settlement is a form of insurance). How close are we to a world of Coasean risk shifting, and how close should we be?