Final answer:
The purchase of insurance on property in transit is determined by who has an insurable interest and responsibility for the loss that arises from legal ownership and control of the property. Clear property rights are essential for allocating this responsibility, as explained by economist Ronald Coase.
Step-by-step explanation:
The decision of who should purchase insurance on property in transit is best determined by considering insurable interest and responsibility for loss. Insurable interest exists when an individual or entity stands to suffer a financial loss if the property is damaged or lost. The responsibility for loss falls on the party who has legal ownership or control of the property during transit and would bear the financial impact if that property is compromised. These determinations are influenced by legal ownership, which is closely tied to clearly defined property rights. In the case of property insurance, those with a direct interest in the property's safety and continuity, such as the owner or custodian of the property, are often rightfully responsible for purchasing insurance coverage.
Economist Ronald Coase highlighted the importance of well-defined property rights for the efficient allocation of resources and risk management. When rights and responsibilities are clear, the party with the legal interest in preventing loss will look for cost-effective ways to mitigate risks. This is a cornerstone concept in insurance markets, which face challenges due to imperfect information. Parties must use reliable information to manage risk, despite challenges in doing so.