New Approaches to Regulatory Enforcement
New Horizons in Law and Economics series
Chapter 6: Corporate liability regimes: a law and economics analysis
Corporate liability may be imposed through a wide spectrum of legal regimes. As shown in Chapter 5, one end of the spectrum consists of “deterrence-oriented” liability regimes that hold corporations “strictly” liable for employee misconduct, regardless of any internal enforcement efforts exerted by these corporations. The other end of the spectrum consists of “cooperation-oriented” liability regimes in which no liability is imposed on cooperative corporations, i.e., corporations that implement due internal enforcement measures aimed at preventing misconduct. The middle of the spectrum is populated by various “mixed regimes” in which corporations are held liable for their employee misconduct, but may benefit from penalty mitigation or evidentiary privileges if they have established and maintained internal enforcement measures. All such regimes, although diverse in structure, share a similar objective that boils down to encouraging corporate proactive compliance at the lowest enforcement cost. Law and economics thinkers have analyzed different structures of corporate liability regimes according to the incentive scheme they produce for corporate proactive compliance. Thus far, no consensus has been reached regarding the optimal structure of corporate liability regimes. Commentators show that in each particular setting, a specific structure of corporate liability may be superior to others. Yet, none of the existing regimes has been widely accepted as producing socially desirable outcomes across a broad range of potential settings.
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