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Title: |
Limited liability effect on product safety |
| Author: |
Bae, Hyung |
| Author
Affiliation: |
Dongkuk University, Korea |
| Source: |
International Economic Journal, September 2004, v. 18, no. 3, pp. 407-415 |
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Publication Date: |
September 2004 |
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Abstract: |
This paper analyses how limited liability and capital size affect a firm's investment for product safety. Firms become bankrupt when their products cause accidents and they cannot compensate for the damages incurred. Relatively small firms obtain greater expected profit because they do not need to pay full damage when their products cause accidents and they become bankrupt. Thus, smaller firms may have greater incentives than larger firms to participate in risky projects. But relatively small firms may invest more for product safety because increasing their investments is not costly in case of bankruptcy. |
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