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Successor Liability and Asymmetric Information

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  • Albert H. Choi

Abstract

The doctrine of successor liability transfers tort liability arising from the seller's past conduct from the seller to the buyer. If the buyer has as much information about the liability as the seller, all beneficial acquisitions take place and the seller takes the efficient level of precaution. However, if the seller has more information about the liability than the buyer, not all beneficial acquisitions are consummated and the seller takes a suboptimal level of precaution. I argue that, in the presence of information asymmetry, the courts should increase the damages against the (potential) seller to provide better incentives to take precaution while decreasing the damages against the buyer to encourage more beneficial asset sales. Copyright 2007, Oxford University Press.

Suggested Citation

  • Albert H. Choi, 2007. "Successor Liability and Asymmetric Information," American Law and Economics Review, American Law and Economics Association, vol. 9(2), pages 408-434.
    • Handle: RePEc:oup:amlawe:v:9:y:2007:i:2:p:408-434
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    File URL: http://hdl.handle.net/10.1093/aler/ahm013
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    Cited by:

    1. Howard F. Chang & Hilary Sigman, 2014. "An Empirical Analysis of Cost Recovery in Superfund Cases: Implications for Brownfields and Joint and Several Liability," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 11(3), pages 477-504, September.
    2. Albert H. Choi & George Triantis, 2021. "Contract Design When Relationship-Specific Investment Produces Asymmetric Information," The Journal of Legal Studies, University of Chicago Press, vol. 50(2), pages 219-260.

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