, SIDE - ISLE 2013 - 9th Annual Conference

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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.

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