Does enhanced shareholder liability reduce bank failure? We compare the performance of around 4,200 state-regulated banks of similar size in neighboring U.S. states with different liability regimes during the Great Depression. The distress rate of limited liability banks was 29% higher than that...

Many low-wage workers in the United States are subject to non-compete clauses, which forbid them to work for competitors. Empirical research has found a link between the prevalence of non-compete clauses and minimum wage legislation. To explain this link, we propose a moral hazard model with...

We analyze a multitasking model with a verifiable routine task and a skill-dependent activity characterized by moral hazard. Contracts negotiated by firm/employee pairs follow from Nash bargaining. High- and low-skilled employees specialize, intermediate productivity employees perform both...

Using a new experimental design, we compare how subjects form beliefs in an investor-client setup under varying degrees of liability. Our results reflect the importance of social preferences when making investment decisions for others. We show that when investors have no liability, those with...

We analyze a multitasking model with a verifiable routine task and a skill-dependent activity characterized by moral hazard. Contracts negotiated by firm/employee pairs follow from Nash bargaining. High- and low-skilled employees specialize, intermediate productivity employees perform both...

This paper investigates whether limited liability affects risk-taking through motivated beliefs. To do so, we run a within-subject experiment in which subjects invest in a risky asset under full or limited liability. In both cases, before the investment is made, subjects observe a noisy signal...

Does enhanced shareholder liability reduce bank failure? We compare the performance of around 4,200 state-regulated banks of similar size in neighboring U.S. states with different liability regimes during the Great Depression. The distress rate of limited liability banks was 29% higher than that...

In this paper we examine the effects of limited liability on mortgage dynamics. While the literature has focused on default rates, renegotiation, or loan rates individually, we study them together as equilibrium outcomes of the strategic interaction between lenders and borrowers. We present a...

The article analyses the use of substantive consolidation in view of the meaning of limited liability in Brazil and explores the proposition that such a solution to corporate distress should only exceptionally be imposed on creditors. In light of Brazilian corporate law, a court should only...

In this paper we examine the effects of limited liability on mortgage dynamics. While the literature has focused on default rates, renegotiation, or loan rates individually, we study them together as equilibrium outcomes of the strategic interaction between lenders and borrowers. We present a...

In this paper we examine the effects of limited liability on mortgage dynamics. While the literature has focused on default rates, renegotiation, or loan rates individually, we study them together as equilibrium outcomes of the strategic interaction between lenders and borrowers. We present a...

This paper investigates whether limited liability and moral hazard affect risk-taking through motivated beliefs. On the one hand, limited liability pushes investors towards taking excessive risks. On the other, such excesses make it hard for investors to maintain a positive self-image when moral...

We analyze a limited liability credit market where the borrowers need to borrow to implement their chosen projects with uncertain outcome. We allow borrowers to invest in resolution of the uncertainty in the project outcome before implementing the project. Our paper provides a complete...

Modern society mitigates and transfers risks in a variety of ways, which range from catastrophe prevention and insurance solutions through to injustices of a minor and inconspicuous nature. We illustrate that the measures taken depend on the uncertainty about the risks in question, and involve...

Without exaggeration, a company with limited liability protection is the greatest invention ever to make an unlimited profit with limited liability or without risk to personal assets of shareholders. As per this doctrine of limited liability, the shareholders are liable for the company’s debts...

This paper investigates whether limited liability and moral hazard affect risk-taking through motivated beliefs. On the one hand, limited liability pushes investors towards taking excessive risks. On the other, such excesses make it hard for investors to maintain a positive self-image when moral...

Riordan and Sappington (JET, 1988) show that in an agency relationship in which the agent's type is correlated with a public ex post signal, the principal may attain first best (full surplus extraction and efficient output levels) if the agent is faced with a lottery such that each type is...

The existing delegation literature has focused on different preferences of principal and agent concerning project selection, which makes delegating authority costly for the principal. This paper shows that delegation has a cost even when the preferences of principal and agent are exogenously...

This article outlines the development of English company law in the four centuries before 1900. The main focus is on the evolution of the corporate form and the five key legal characteristics of the corporation - separate legal personality, limited liability, transferable joint stock, delegated...

This paper analyzes the optimal contract for a consumer to procure a credence good from an expert when (i) the expert might misrepresent his private information about the consumer’s need, (ii) the expert might not choose the requested service since his choice of treatment is non-observable,...

In this article we have discussed several aspects as companies are concerned. Thus, we will focus in particular on the limited liability company, which can either be single-person or multi-person. We consider it appropriate to highlight the facilities granted to those students who wish to set up...

We study the role of capital requirement in immigrants' self-employment decision with the help of a reform implemented in Sweden in 2010 which reduced capital requirements for limited liability companies. For both men and women, the reform increased both the probability of starting a limited...

Many low-wage workers in the United States are subject to non-compete clauses, which forbid them to work for competitors. Empirical research has found a link between the prevalence of non-compete clauses and minimum wage legislation. To explain this link, we propose a moral hazard model with...

When a supplier fails to comply with social and environmental standards, the buyer's reputation suffers. Reputation costs can typically be very high for the buyer whereas the supplier's liability is often limited. Conventional procurement strategies like dual sourcing mitigate the buyer's...

This paper investigates optimal contracts between risk-neutral parties when both exert efforts and the agent faces limited liability. It is shown that a simple share-or-nothing with bonus contract (SonBo for short) is optimal and implements the second-best outcome, i.e., the best possible...

The Companies and Allied Matters Act, 2020 (“the Act”) introduced a myriad of changes to the Nigerian business environment and corporate sector. Among such changes is the creation of a novel business structure called Limited Liability Partnerships (“LLPs”) . This article will explore the...

This paper will examine the ways in which parent companies within corporate groups can be held liable by means of common law doctrines and statutory principles. Where a subsidiary company within a corporate group becomes insolvent and is unable to pay its creditors in full, the principles of...

We study the role of capital requirement in immigrants' self-employment decision with the help of a reform implemented in Sweden in 2010 which reduced capital requirements for limited liability companies. For both men and women, the reform increased both the probability of starting a limited...

I consider a moral hazard problem with risk neutral parties, limited liability, and an informed principal. The contractible outcome is correlated to both the principal's private information and the agent's hidden action. In contrast to a model without a privately informed principal or without...

We study how parent liability for subsidiaries' environmental cleanup costs affects industrial pollution and production. Our empirical setting exploits a Supreme Court decision that strengthened parent limited liability protection for some subsidiaries. Using a difference-in-differences...