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Documenting Innocence along with Guilt: Legal Errors, Self-Policing and Corporate Vicarious Liability
Emanuela Carbonara, Sharon Oded

Last modified: 2013-12-02

Abstract


US Federal corporate liability regimes have gone through a far-reaching transition in the last two decades. A pivotal aspect of this transition is the departure from the traditional standard of strict vicarious liability, and the gradual adoption of a wide range of duty-based standards that recognize corporations’ self-policing as a liability mitigating factor. The Law and Economics literature to date reinforces this transition; commentators have pointed at the “perverse effect” that self-policing may have on corporate expected liability, and thereby questioned the ability of strict vicarious liability to sufficiently motivate corporations to self-police. This paper extends the existing literature by introducing a counteracting effect not yet considered in the literature, that is, the “exculpatory effect”. Using an error-analysis, we identify circumstances under which strict vicarious liability may optimally induce corporate self-policing. The results of our analysis cast serious doubts on the social desirability of the direction in which US Federal corporate liability regimes has been developing.

Keywords


Corporate liability, Strict liability, Vicarious liability, Duty-based liability, Deterrence, Legal errors, Self-policing

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