Multinational Enterprise Tort Liability and Limited Liability Rule : An Economic Analysis

This article explores the tort liability of MNEs and looks at corporate tort as a negative externality that results from the limited liability rule (LLR). The analysis mainly uses an economic model of cost-benefit analysis. This article proposes a partial reform of the LLR in the case of tort claims.The article sheds light on the problem of MNE-caused tort and how to fill the gap through a cost-benefit analysis of LLR. Broadly put, this article employs a law and economics approach to explore the efficient liability rule that could apply to MNEs' tort liability. To this end, the intuition that guides this approach follows Demsetz's account, which reads: “Changes in knowledge result in changes in production functions, market values, and aspirations. New techniques, new ways of doing the same things and doing new things — all invoke harmful and beneficial effects to which society has not been accustomed.” In line with this, the thesis of the article follows that LLR is a technique that results from dynamic socio-economic and political changes. This technique has both harmful and beneficial effects on society. Hence, the best way of balancing the two byproducts of this technique is through cost-benefit analysis and introduction of an appropriate liability rule. The scope of this article is limited to the cost-benefit analysis of LLR in relation to MNEs' tort liability. It starts with case analysis to put the problem in context. The primary economic models it employs are a cost-benefit analysis of LLR and purposive and functional analysis of the same rule