Liability and Large-Scale, Long-Term Hazards

Malpractice Laws and Incentives to Shield Assets: Evidence from Nursing Homes

“…While our study focuses on the nursing home industry, it has potentially broader implications for the topic of tort law and asset shielding. Ringleb and Wiggins () document that a substantial increase in tort liability motivated large manufacturers to sell hazardous plants (producing carcinogens and other disease‐causing byproducts) to smaller firms, which were either “more likely to go out of business before latent claims emerge or have insufficient assets to pay damages and declare bankruptcy when claims are filed.” We consider the use of asset shielding by a set of service industry firms (i.e., nursing homes). In so doing, we extend the literature on asset shielding by considering a different set of tradeoffs and firm behavior.…”

Insolvency and Incentives for Efficient Care

“…Much of the existing research has focused on investigating whether firms take steps to increase the extent to which limited liability enables them to avoid paying damages to third parties. Ringleb and Wiggins (1990) provide evidence that industries more likely to generate liability to their employees for carcinogenic exposure saw an increase in the number of small (and thus more likely to be judgment-proof) firms. White (1998) and Lawton and Oswald (2008) offer counterpoints of sorts to Ringleb and Wiggins (1990), though with very small samples and very informal statistical tools.…”

“…Ringleb and Wiggins (1990) provide evidence that industries more likely to generate liability to their employees for carcinogenic exposure saw an increase in the number of small (and thus more likely to be judgment-proof) firms. White (1998) and Lawton and Oswald (2008) offer counterpoints of sorts to Ringleb and Wiggins (1990), though with very small samples and very informal statistical tools. Listokin (2008) shows that firms in industries that are more susceptible to tort liabilities do not have more secured debt than firms in other industries.…”

Environmental Policies Choice as an Issue of Informational Efficiency

“…Moreover, given that they do not pay the full cost connected with the environmental damage they are not stimulated to the adoption of the efficient level of preventive measure (Shavell, 1986;Summer, 1983). This problem emerged dramatically in US in cases of reduced size firm operating in risky production activities (Ringleb, Wiggins, 1990). On a economic point of view, this is a problem of internalization in the sense that it causes the fact that some of the losses of the victims may go unclaimed under conventional strict liability; moreover in some cases firms facing considerable liability risks may reduce their capital using "judgment proofness" as an evasion strategy (Van't Veld, Rausser, Simon, 1997).…”