The buck stops where? The role of limited liability in economics
AbstractOver the last few centuries laws have increasingly protected individuals and corporations from liability resulting from bad economic outcomes. This evolution in liability provisions, by many accounts, has significantly influenced both the level and distribution of contemporary economic output as well as the allocation of financial resources in today's financial markets. ; Through a review of an extensive and growing literature, the authors of this article consider how limited liability affects investment, labor, and financing decisions made by individuals and corporations as well as government policies intended to promote economic growth or redistribute wealth. The authors first examine conflicts that may arise in labor markets because of certain rights held by providers of human capital or because some assumptions about personal limited liability may not be compatible with sustained production. The discussion then considers how liability rules influence the incentives of debtors, creditors, and managers. Finally, the authors look at the role of limited liability in the relationship between government and private institutions as it relates to economic growth and the provision of liquidity to the banking system. ; By providing an explanation of incentive structures under alternative liability regimes, this article should help policymakers better understand the possibly unintended effects of certain policies and programs.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Federal Reserve Bank of Atlanta in its journal Economic Review.
Volume (Year): (1997)
Issue (Month): Q 1 ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ross, Stephen A, 1973. "The Economic Theory of Agency: The Principal's Problem," American Economic Review, American Economic Association, vol. 63(2), pages 134-39, May.
- Winton, Andrew, 1993. " Limitation of Liability and the Ownership Structure of the Firm," Journal of Finance, American Finance Association, vol. 48(2), pages 487-512, June.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- John, Kose & John, Teresa A. & Senbet, Lemma W., 1991. "Risk-shifting incentives of depository institutions: A new perspective on federal deposit insurance reform," Journal of Banking & Finance, Elsevier, vol. 15(4-5), pages 895-915, September.
- Hart, O. & Moore, J., 1991.
"A Theory of Debt Based on the Inalienability of Human Capital,"
592, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hart, Oliver & Moore, John, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 841-79, November.
- Oliver Hart & John Moore, 1995. "A Theory of Debt Based on the Inalienability of Human Capital," NBER Working Papers 3906, National Bureau of Economic Research, Inc.
- Oliver Hart & John Moore, 1991. "A Theory of Debt Based on the Inalienability of Human Capital," STICERD - Theoretical Economics Paper Series /1991/233, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Bernanke, Ben S, 1983.
"Nonmonetary Effects of the Financial Crisis in Propagation of the Great Depression,"
American Economic Review,
American Economic Association, vol. 73(3), pages 257-76, June.
- Ben S. Bernanke, 1983. "Non-Monetary Effects of the Financial Crisis in the Propagation of the Great Depression," NBER Working Papers 1054, National Bureau of Economic Research, Inc.
- Anderson, Gary M & Tollison, Robert D, 1982. "Adam Smith's Analysis of Joint-Stock Companies," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1237-56, December.
- Evans, Lewis T & Quigley, Neil C, 1995. "Shareholder Liability Regimes, Principal-Agent Relationships, and Banking Industry Performance," Journal of Law and Economics, University of Chicago Press, vol. 38(2), pages 497-520, October.
- Thomas H. Noe & Stephen D. Smith, 1994. "Contractual opportunism, limited liability, and the role of financial coalitions," Working Paper 94-17, Federal Reserve Bank of Atlanta.
- Grossman, Sanford J, 1995. " Dynamic Asset Allocation and the Informational Efficiency of Markets," Journal of Finance, American Finance Association, vol. 50(3), pages 773-87, July.
- Nachman, David C & Noe, Thomas H, 1994. "Optimal Design of Securities under Asymmetric Information," Review of Financial Studies, Society for Financial Studies, vol. 7(1), pages 1-44.
- R. Glen Donaldson, 1988. "Panic, liquidity and the lender of last resort: a strategic analysis," International Finance Discussion Papers 332, Board of Governors of the Federal Reserve System (U.S.).
- Holmstrom, Bengt & Tirole, Jean, 1996. "Modeling Aggregate Liquidity," American Economic Review, American Economic Association, vol. 86(2), pages 187-91, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Meredith Rector).
If references are entirely missing, you can add them using this form.