The firm's insurance decision. Some questions raised by the capital asset pricing model

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Abstract
Using the capital asset pricing model it is shown that the firm will be indifferent towards insurance against specific risks. Insurance against systematic risks involves a transfer of these non‐diversifiable risks from the firm to the insurance company, and will thus only be available at a price which reflects the ‘market price of risk’. Again the firm will be indifferent towards insurance. This then leads to the investigation of alternative motivations for a firm purchasing insurance — the costs of financial distress, human capital considerations, asymmetry of information and tax laws.