The central hypothesis of this article is that liability regulation can foster firms' incentives to study the (potential) dangers of their products. We discuss alternative views and develop a formal model to analyze a firm's incentive structure under the application of hindsight liability. We...

Banks lend more to banks that are similar to them. Using data from the German credit register and proprietary supervisory data on the quality of banks’ loan portfolio, we show that a similar portfolio of the lending and borrowing bank helps to overcome information asymmetries in interbank...