Strategic Judgment Proofing

DSpace/Manakin Repository

Strategic Judgment Proofing

Citable link to this page


Title: Strategic Judgment Proofing
Author: Spier, Kathryn E.; Che, Yeon-Koo

Note: Order does not necessarily reflect citation order of authors.

Citation: Yeon-Koo Che & Kathryn E. Spier, Strategic Judgment Proofing, 39 RAND J. Econ. 926 (2008).
Full Text & Related Files:
Abstract: A liquidity-constrained entrepreneur raises capital to finance a business activity that may harm bystanders. The entrepreneur raises senior (secured) debt to shield assets from the tort victims in bankruptcy. For a fixed level of borrowing, senior debt creates better incentives for precaution taking than either junior debt or outside equity. The entrepreneur's level of borrowing is, however, socially excessive. Giving tort victims priority over senior debtholders in bankruptcy prevents overleveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A limited seniority rule dominates these alternatives. Shareholder liability, mandatory liability insurance, and punitive damages are also discussed.
Published Version:
Other Sources:
Terms of Use: This article is made available under the terms and conditions applicable to Open Access Policy Articles, as set forth at
Citable link to this page:
Downloads of this work:

Show full Dublin Core record

This item appears in the following Collection(s)


Search DASH

Advanced Search