The Economic Consequences of Expanded Corporate Liability

The legal liabilities facing U.S. corporations have expanded substantially over the last decade. Traditional liabilities, notably those associated with defective products, have become more stringent, while new liabilities, particularly those associated with hazardous waste disposal and the discharge of employees, have emerged. The corporate sector has expressed considerable concern about the impact of these new liabilities on the economic performance of the nation, arguing that they have significantly reduced the productivity and international competitiveness of U.S. firms. This Note presents a framework for analyzing how expanded liability might affect such outcomes as productivity and international competitiveness and offers some preliminary evidence on the impact of expanded liabilities on the behavior of corporations. The Note is based in part on a review of existing studies, and it also incorporates the results of interviews with a number of corporate officials involved in liability-related matters.