Protecting investors from being sued for their company’s mistakes may be a 20% drag on the American economy.
Limited liability is widely considered one of the greatest inventions of capitalism, but this paper argues it is actually a 'costly economic mistake.' By shielding owners from the consequences of corporate negligence, it encourages companies to take reckless risks and shift trillions of dollars in costs onto victims and the government.
Against Limited Liability
SSRN · 6490198
<div> <span>Limited liability is an entity characteristic that excuses the entity’s investors from liability for damages caused by the entity’s wrongful acts. Although prominent scholars have referred to limited liability as “one of mankind’s greatest ideas,” limited tort liability is a costly economic mistake. Limited liability channels investment away from projects that increase social wealth into projects that take excessive risks, harm third parties, and shift their costs to their victims an