Limited Liability and the Known Unknown
USC CLASS Research Papers Series No. CLASS18-3
USC Legal Studies Research Papers Series No. 18-3
36 Pages Posted: 12 Feb 2018 Last revised: 27 Feb 2018
Date Written: February 27, 2018
Private firms often withhold information or contest scientific knowledge when public revelation could lead to costly regulations or liability. This concealment leads to negative externalities and public harm. But what if private firms’ superior knowledge and self-interest could be harnessed to reveal information about risks and accelerate the implementation of safety regulations?
In Limited Liability and the Known Unknown, I argue that firms that desire limited liability for their investors should be forced to pay what they believe limited liability is worth. This would have several salutary effects. Firms’ choice between unlimited liability and higher taxes would reveal important information about internal risk assessments, reduce public-private information asymmetries, and accelerate the application of scientific knowledge to personal and public health.
Keywords: Limited liability, risk, externalities, tax, revenue, income, regulation, safety, hansmann, grundfest, information asymmetry, revealed preference, sorting, selection, science, innovation, environment, health, corporate, LLC, partnership, liability, judgment proof
JEL Classification: D23, D61, D62, D82, D81, D83, G01, G22, G3, H12, H23, H25, H5, H7, I18, K2, K32, K34, K22, M2, P1
Suggested Citation: Suggested Citation