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Limited Liability and the Known Unknown

35 Pages Posted: 12 Feb 2018 Last revised: 22 Feb 2018

Michael Simkovic

USC Gould School of Law; University of Southern California - Marshall School of Business

Date Written: February 9, 2018

Abstract

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

Simkovic, Michael, Limited Liability and the Known Unknown (February 9, 2018). Duke Law Journal, Vol. 68, 2018. Available at SSRN: https://ssrn.com/abstract=3121519

Michael Simkovic (Contact Author)

USC Gould School of Law ( email )

699 Exposition Boulevard
Los Angeles, CA 90089
United States

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA 90089
United States

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