Research Handbooks in Law and Economics series
Edited by Jennifer H. Arlen
Chapter 9: Economic policy and the vicarious liability of firms
This chapter addresses the legal and policy issues arising from the vicarious liability of organizations (“firms”) for the torts of their agents. After reviewing basic aspects of tort liability from a law-and-economics perspective, I offer an analysis of vicarious liability with particular attention to the liability of large firms. In particular, this chapter focuses on two clusters of related issues. The first concerns the likely social costs and benefits of vicarious liability, considered as a rule of tort liability. For example, how exactly does a corporation’s liability for the carelessness of its agents reduce the social costs of torts—or why do we think that it does? Do the benefits result in part because tort damages are too blunt a tool to influence the corporate agents who actually cause torts? Or do we believe that these agents are simply insensitive to tort liability, perhaps because they lack sufficient assets to pay tort damages or perhaps for some other reason such as ignorance or cognitive bias? These questions aim at assessing the merits of vicarious liability as a liability rule. By contrast, a second cluster of issues addressed here relates to the scope and implementation of vicarious liability when the principal is a firm rather than an individual.
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