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Partially Odious Debts? A Framework for an Optimal Liability Regime

50 Pages Posted: 15 Mar 2007  

Omri Ben-Shahar

University of Chicago Law School

G. Mitu Gulati

Duke University School of Law

Abstract

This article argues that the cost of odious debt ought to be borne by the party who is best positioned to prevent the accumulation of such debt. Creditors should bear odious debt liability - be barred from recovering the debt - to the extent that they could have taken measures to reduce the risk of forfeiture or to monitor the use of the money. Such liability would induce better care in funding decisions. At the same time, the magnitude of creditors' liability should reflect only the true social harm of odious debt. Even despotic regimes direct some of the funds to benefit the populace. Accordingly, creditors' liability ought to extend only to the fraction of the debt that served odious purposes. Effectively, liability for odious debt would be shared by the creditors and populace, with the relative shares depending on comparative blameworthiness, assessed from an economic, incentive-oriented perspective. After developing this principle, the paper explores ways in which it can be implemented.

Suggested Citation

Ben-Shahar, Omri and Gulati, G. Mitu, Partially Odious Debts? A Framework for an Optimal Liability Regime. Law & Contemporary Problems, Vol. 70, 2007; U of Michigan Law & Economics, Olin Working Paper No. 07-007; Duke Law School Legal Studies Paper No. 150. Available at SSRN: https://ssrn.com/abstract=970553

Omri Ben-Shahar

University of Chicago Law School ( email )

1111 E. 60th St.
Chicago, IL 60637
United States

Gaurang Mitu Gulati (Contact Author)

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States

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