Fly by Night or Face the Music? Premature Dissolution and the Desirability of Extended Liability

James W. Boyd () and Daniel E. Ingberman

American Law and Economics Review, 2003, vol. 5, issue 1, pages 189-232

Abstract: Premature dissolution can be a rational corporate response to the threat of future liability. Although early dissolution is costly to a firm, liability may be more so. The way in which liability rules can exacerbate this extreme form of liability avoidance is of interest, since "fly-by-night" firms generate particularly large social costs. In particular, we explore the consequences of liability that is extended to the business partners of an insolvent or absent tortfeasor--a relatively common legal response when tortfeasors abandon obligations. Extended liability can be desirable; however, if extended liability is anticipated, business partners themselves may choose to fly by night. We show how the preferred liability rule, including no liability, depends on the relative costs of premature dissolution and future obligations. The analysis also sheds light on a set of interrelated legal issues, such as the role of the trust fund doctrine and state dissolution statutes. Copyright 2003, Oxford University Press.

Date: 2003
View citations in EconPapers

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:oup:amlawe:v:5:y:2003:i:1:p:189-232

Ordering information: This journal article can be ordered from
http://www.oup.co.uk/journals

Access Statistics for this article

American Law and Economics Review is edited by Hon. Richard A. Posner

More articles in American Law and Economics Review from Oxford University Press
Address: Oxford University Press, Great Clarendon Street, Oxford OX2 6DP, UK
Series data maintained by Christopher F. Baum ().