Endogenous Determination of the Liability Rule in Oligopolistic Markets

Takao Ohkawa, Tetsuya Shinkai (), Makoto Okamura and Kozo Harimaya
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Makoto Okamura: Faculty of Economics, Ritsumeikan University

No 91, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: We address the following question: Why do most large firms select limited liability as their business organizational form in the real world? We construct a two-stage game. In the first stage, each of the oligopolistic firms chooses its business organizational form, while in the second stage, each behaves in a Cournot fashion. The following conclusions are established. (1) Even if an unlimited liability firm is viable, all firms become limited liability entities in equilibrium. (2) The equilibrium industry configuration, where all firms become limited liability entities, achieves efficiency in the second-best sense.

Keywords: business organizational form; limited liability; unlimited liability; Cournot oligopoly (search for similar items in EconPapers)
JEL-codes: G32 K22 L13 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-07, Revised 2012-07
New Economics Papers: this item is included in nep-ind
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:91

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