Download the file - United Nations Rule of Law

of some legal action brought by the governmentor another party. For example, a poor personmay suddenly find herself the target of an evictionproceeding, a private lawsuit, or — mostterrifying of all — a criminal prosecution. Whenthis sort of disaster occurs, the individual maysuddenly find herself in need of expensive legalservices, but she may not have sufficient assetson hand to pay these costs herself. One mightreasonably suppose that the private value to thepotential target of having access to such servicesin case of a legal emergency exceeds the probability-discountedcost to potential providers ofpromising to make such services available. Inother contexts where this is the case, privatefirst-party insurance markets emerge: The potentiallyneedy individual pays some regular fee tothe insurer, and in the event of emergency theinsurer pays the majority of the cost of providingthe emergency service. But although efficientprivate insurance markets for legal services havedeveloped in some parts of Europe (Killian 2003,Regan 2003), they are generally rare elsewhere inthe world. The lack of effective insurance againstlegal risk burdens the poor much more than theaffluent, because the affluent are better able toself-insure — for example, by having large ‘rainyday funds’ available to cover unforeseen emergencyexpenditures.One reason for the dearth of effective private legalinsurance arrangements may be the genericproblem that very poor individuals devote all theirassets to short-term subsistence; they would notbe willing or able to buy legal insurance even if itwere available. Insofar as that is the main cause,the most obvious solution is straightforwardredistribution of wealth rather than any reformtargeted at legal services specifically. Anotherreason may be that poor people lack sufficientaccess to information about the benefits of legalinsurance. This consideration is a variant on thegeneral concern about the lack of adequate legalinformation, considered in a later section.Other reasons for a failure in the market for legalinsurance involve problems with insurance marketsgenerally. The first problem is ‘moral hazard’:those with insurance are less likely to take care toavoid taking actions that are likely to trigger theneed for insurance coverage. The second problemis ‘adverse selection’: those at greater risk aremore likely to purchase insurance, which leadsto a vicious cycle in which price increases deterpurchases by relatively lower-risk individuals, andthe increasing concentration of high-risk individualsin the insurance pool drives the price upfurther (Bolton and Dewatripont 2005). In otherprivate insurance markets, providers and regulatorstry to deal with the moral hazard and adverseselection problems through devices like deductiblesand co-payments, price discrimination onthe basis of risk factors, and mandatory groupinsurance plans. These mechanisms may not beadequate to address the problem in the context oflegal insurance, however. The result, then, is thatmany people of modest means may not be ableto purchase private insurance against legal risks,even if they are willing and able to do so.One straightforward solution to pervasive failuresin the market for legal insurance is for the stateor the international donor community to step in toprovide universal insurance against certain typesof legal risks. The most obvious and widespreadform of government-administered legal insuranceis the provision of public defenders for indigentcriminal defendants. Governments and NGOs thatoffer free or subsidised legal assistance to individualsfighting eviction, defending against civillawsuits, or contesting fines levied by governmentagencies are also essentially providing subsidisedlegal insurance.32