Mason, R.A. and Swanson, T.M.
Long-term liability and the choice of liquidation
Geneva Papers on Risk and Insurance, 79, (4), .
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This paper argues that the combination of limited liability, the productive characteristics of many polluting industries, and the long-term nature of certain environmental damages, presents shareholders of limited liability corporations with an incentive to liquidate their firm before large future liabilities are realised. A formal model is developed, and then parameterised, to indicate the types of firms that will engage in this (and other) behaviour; concrete examples of each type are given. The policy implications are explored, concentrating on the need for separate, ex ante regulation to address the distinct problem of strategic liquidation.
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