Encyclopedia of Law & Economics - 3400 VICARIOUS AND CORPORATE CIVIL LIABILITY



Reinier H. Kraakman

Professor of Law, Harvard Law School

© Copyright 1998 Reinier H. Kraakman


1. Introduction
2. The Standard Case for Vicarious Liability
3. Factors Militating Against Strict Vicarious Liability
4. The Interaction Between Principal and Agent Liability
5. Negligence and Composite Vicarious Liability Regimes
6. Reaching Beyond the Principal: Alternative Liability Targets
7. Corporate Civil Liability Versus Criminal Liability
Bibliography on Vicarious and Corporate Civil Liability (3400)
Other References


Vicarious liability is the strict liability of a principal for the misconduct of heragent. This article reviews six areas of commentary on vicarious and corporatecivil liability. It begins by formulating the standard case for vicarious liabilitybased on the likely insolvency of the firm's culpable agents in the face ofmassive liability for business torts. Next, it addresses cost considerations thatmilitate against imposing vicarious liability on the corporation in somecircumstances, and the relationship between corporate liability the structure ofliability imposed on corporate agents. Two additional sections of the articlereview alternatives to traditional vicarious liability regimes, including alternativeliability rules for corporate principals (notably a negligence rule) and alternativetargets for liability besides the firm (notably top corporate managers). Finally,the article reviews recent literature on the distinction between corporate civil andcriminal liability. It concludes that the case made out thus for distinguishingbetween these too forms of corporate liability is weak.

JEL classification: K13, K22, K42

Keywords: Vicarios Liability, Corporate Liability, Principal, Agent, Gatekeeper

1. Introduction

"Vicarious liability" is the absolute liability of one party -- generally the legal"principal" -- for misconduct of another party - her "agent" - the actor whoseactivities she directs. As such, traditional vicarious liability is a form of strictsecondary liability, in contrast to secondary liability imposed on principals orother parties under a duty-based standard such as negligence. In the commonlaw, the legal doctrine of respondent superior is the principal vehicle for holdingprincipals liable for the torts and other delicts of their agents. Under thisdoctrine, principals are jointly and severally liable for the wrongs committedwithin the "scope of employment" by agents whose behavior they have the legalright to control ("servants"). Restatement (Second) of Agency (1958, §§2, 219,220, 229).

Most corporate liability for torts, and in the United States for crimes as well,is vicarious liability imposed under respondent superior or a similar doctrine. Tobe sure, corporate liability may also be direct, as when the independent actionsof several corporate agents cumulatively result in a business tort, although nosingle agent is individually culpable. But even in this case, the liability ofcorporate principals is best conceptualized as vicarious liability for the failure ofthe firm's management to supervise its employees.

An overview of the literature on vicarious and corporate civil liability mustaddress at least six areas of commentary: (a) the standard case for strict vicariousliability, (b) the factors militating against vicarious liability, (c) the interaction

between vicarious liability and the structure of liability for agents, (d)alternatives to a strict vicarious liability standard, (e) alternative targets forvicarious liability, and (f) the choice between civil and criminal corporate liability.

2. The Standard Case for Vicarious Liability

The initial issue raised by a regime of vicarious liability for torts is the Coasianquestion: why should an allocation of liability between principals and agentsmatter if these parties are able to reallocate liability among themselves byagreement? The fundamental analysis of vicarious liability, developed with theaid of principal-agent models by Kornhauser (1982) and Sykes (1981, and 1984),looks to the insolvency of agents and to limitations on the ability of the partiesto shift liability as the basic conditions favoring vicarious liability. As a generalmatter, Kornhauser (1982), Sykes (1984), and Shavell (1987) agree that vicariousliability for ordinary torts is more likely to increase social welfare as the disparitybetween agent assets and the magnitude of prospective tort liability increases.By contrast, where tort liability would leave both principals and agents solventand the costs of negotiating between principals and agents are slight, vicariousliability is likely to have few efficiency consequences. E.g., Kornhauser (1982,p. 1351-1352) and Sykes (1984, p. 1241).

Given that principals can satisfy prospective tort liability but agents cannot,vicarious liability may or may not be efficient. Consider first the considerationsthat weigh in favor of vicarious liability when agents are insolvent but corporateprincipals are not.

To begin, vicarious liability is increasingly likely to be efficient as principalshave greater ability to monitor or otherwise control agent risk-taking. Theanalysis is straightforward. Absent vicarious liability, personal liability givesinsolvent agents insufficient incentive to take care, since they lack the wealth topay tort damages. Sykes (1981, p. 168) and Shavell (1987, p. 170-171). Moreover,their principals have no incentive to urge greater care, since the only liabilitycost faced by principals (in the absence of secondary liability) is the wage costof offsetting the expected liability of their agents. Thus, insolvent agents undera regime of purely personal liability will lead firms to take too little care and toinitiate too much risky activity or misconduct. By contrast, principals who arevicariously liable and face the full expected cost of tort damages will seek tocontrol their agents to ensure optimal precautionary measures.

The traditional doctrine of respondent superior is fully in accord with thisanalysis since it appears to tie vicarious liability explicitly to the principal's costsof monitoring or otherwise controlling employee behavior. Landes and Posner(1987, p. 208). For example, agency law determines the principal's tort liabilitybased not only on her capacity to monitor her agent's actions but also on herability to contractually alter her agent's incentives, as when the scope ofemployment rules condition vicarious liability on whether the culpable agentacted, at least in part, to benefit his principal. Restatement (Second) Agency(1958, §228(1)(c)).

Apart from inducing principals to control agent misconduct throughmonitoring and preventive measures, vicarious liability can also force principalsto internalize the costs of misconduct when agents are judgment proof. In theprivate sector, at least, forcing firms to internalize the costs of misconduct thataccompanies their productive activity leads, other things being equal, to anefficient scale of production by bringing the private costs of production into linewith the social costs. E.g., Shavell (1980) and Kramer and Sykes (1987, p. 286).Thus, even if corporate principals cannot control caretaking by agents, vicariousliability can ensure that they at least face the full expected costs of accidents orwrongdoing, and thus do not undertake too much risky activity -- providing, ofcourse, that their agents are also strictly liable for the underlying harms at issue.Polinsky and Shavell (1993).

As Shavell (1987, p. 173-174) notes, moreover, several other considerationsfavor a rule of corporate vicarious liability as well, especially when contractingbetween principals and agents is constrained and there are limitations such assolvency on the effective liability faced by agents. First, principals may be betterinformed than agents about accident risks, or better able to limit these risks byreorganizing the workplace. Second, principals -- and particularly firms -- may bebetter able to monitor and discipline agents than the courts. Thus, vicariousliability may be socially advantageous if principals are less likely than courts toerr in reviewing agent conduct. Third, principals may be more attractive targetsof liability as a consequence of what Kornhauser (1982, p. 1370-1371) terms theproblem of "multiple agents." That is, an outside plaintiff may find the task ofdetermining which of a firm's many agents has caused a tort extremely costly,even when one of the firm's agents is clearly responsible. But if the firm facesliability, it may be able to locate and discipline the culpable agent -- or, even ifit cannot, it may be able to reduce tort costs through other means such astraining programs or screening measures. Fourth, as most commentatorsacknowledge, shifting liability to principals under a vicarious liability rule islikely to reduce risk bearing costs, at least in the paradigmatic case where agentsare risk averse or insolvent, principals are firms, and victims are risk averseindividuals. E.g., Kramer and Sykes (1987, p. 278) and Chapman (1996).

Finally, in addition to the justifications for vicarious liability resting on theassumption of rational, utility-maximizing actors, some commentators haveproposed justifications based on limited or defective rationality, particularly onthe part of corporate agents. E.g., Croley (1996) and Schwartz (1996a). In theseaccounts, defective rationality blunts the incentive effects of liability onwayward agents, much as insolvency, or external constraints on sanctions, limitsthe power of liability to deter agents in more conventional accounts of vicariousliability.

3. Factors Militating Against Strict Vicarious Liability

Although the standard considerations favoring vicarious liability make apersuasive case in many circumstances, they also point to several factors thatmilitate against vicarious liability. Agents who are well capitalized, especially inrelationship to their putative principals, are better left to bear full personalliability for business torts on both incentive and risk bearing grounds. AsShavell (1987, p.174) argues, outside the conventional context of largeenterprises and their employees, "there is no natural presumption" about thecomparative capitalization of principals and agents -- or about the ability ofprincipals to observe the loss avoidance behavior of agents. Imposing liabilityon principals who cannot monitor their agents is unlikely to reduce accidentcosts and, as Sykes (1984, p.1249) notes, may actually decrease safety bylowering the expected liability of agents for their own negligence. Finally, mostcommentators agree that whatever the advantages of vicarious liability, it clearlyincreases administrative costs by including additional defendants in tort actions.

Even in the context of large firms, where the case for vicarious liability isgenerally strongest, it is arguably inappropriate under some circumstances. Oneexample arises when senior managers intentionally release fraudulent informationinto the capital market in order to protect their jobs or secure personal benefits.As Arlen and Carney (1992) note, vicarious liability may have little deterrenteffect when top managers charged with supervising the firm act on their ownbehalf in committing misconduct, particularly when these managers are in an endgame because the firm faces likely bankruptcy. Further, the risk-bearing rationalefor imposing liability on the firm rather than on its agents is weak for suchself-conscious misconduct because managers can avoid risk of liability simplyby refraining from making misleading statements. Finally, the firm liable fordamages inflicted by its top managers on a subset of its own investors hasperverse consequences. Absent strong evidence that such liability leads managers to monitor one another, its effect is simply to shift assets (net oflitigation expenses) from one class of innocent investors to another.

Arlen (1994) also identifies a second circumstance in which holding firmsvicariously liable for the intentional wrongdoing of agents can generate perverseincentives and increase enforcement costs. In cases where misconduct isdifficult to detect, the firm may enjoy a comparative advantage over outsiders inmonitoring for it. Yet the firm will not monitor optimally under a vicarious liabilityregime - and may not monitor at all- if the information that the firm acquires canbe used to increase its own probability of incurring liability. The reason isstraightforward: increased monitoring lowers the firm's expected liability costsby raising its ability to deter or prevent misconduct, but increased monitoringalso raises the firm's expected liability costs by increasing the probability that,should misconduct occur, the firm will be held liable for it. Although Arlen (1994)directs her analysis to corporate crimes, the "potentially perverse" effect thatshe identifies clearly extends to vicarious civil liability for torts that may bedifficult to detect without monitoring by the principal.

A related observation, made in Arlen and Kraakman (1997, pp. 712-717), isthat a credibility problem may arise where strict vicarious liability is used toinduce firms to monitor or investigate misconduct. The nub of the problem isthat, absent a commitment device such as reputation, firms may not have anincentive to actually monitor, or to investigate and report misconduct after it hasoccurred. While credible threats to implement these measures would determisconduct, the measures themselves add nothing under a vicarious liability ruleexcept enforcement costs and enhanced liability risks for firms. The danger, then, is that some firms may not be able to make credible enforcement threats - evenif they intend to carry them out - because wayward agents rightly suspect thatactually implementing these enforcement measures would be acting againstinterest. By contrast, an element of duty-based liability such as a negligence rulecan assure the credibility of enforcement threats, just as it can overcome theperverse effects associated with traditional vicarious liability. Arlen andKraakman (1997, p. 717-718).

Lastly, a novel set of problems associated with strict vicarious liability arisesin the context of government bodies and certain non-profits that are not subjectto ordinary market constraints. While the aims of inducing optimal caretaking,self-policing, and efficient risk bearing arguably support vicarious liability forsuch non-market entities jsut as they do for business corporations, the argumentfor this liability rule based on the need to regulate activity levels does not. SeeKramer and Sykes (1987, pp. 278-283). It is simply unclear how costinternalization affects the scale of the non-market enterprise -- it might yield toomuch or too little activity. Kramer and Sykes (1987, p. 286). For this reason, aduty-based or negligence-based liability regime might be preferred to strictvicarious liability for non-market entities such as cities, Kramer and Sykes (1987,p. 294) -- just as it might sometimes be preferable for rival firms where perverseincentive and credibility problems are severe.

4. The Interaction Between Principal and Agent Liability

An important question in the literature concerns the relationship betweenvicarious liability and the regime under which the principal's agent incurspersonal liability. Vicarious liability is a form of strict liability: the principal isabsolutely liable for the delicts of the agent as if the principal actually were theagent. Moreover, the agent and the principal share exactly the same liability: theprincipal simply steps into the shoes of the agent. Yet both of these dimensionsof the traditional vicarious liability regime are open to challenge in manycircumstances.

Consider first whether the agent and the principal should face the sameliability. In the standard case where the principal is an enterprise, the agent is anemployee, and the agent's actions trigger significant liability, a rule of vicariousliability generally makes the enterprise rather than the agent liable as a practicalmatter. Kraakman (1984a; 1984b). At most, the culpable agent faces the loss ofhis job and the risk of losing limited assets in a civil lawsuit. Chapman (1996)argues that this shift from individual to enterprise liability protects firms from theagency problem of overcompliance that might otherwise arise as managerssought to reduce their risk of personal liability.

As Polinsky and Shavell (1993) observe, however, the opposite problem mayalso arise: The firm may not be able to administer private sanctions severeenough to induce its employees to take optimal care where the social costs oftorts are large. Thus, it may be appropriate to not only sanction employees butto administer criminal sanctions such as fines and imprisonment, even when thefirm remains liable for only civil damages. Polinsky and Shavell (1993) proposecriminal liability for employees, then, not because employees are inherentlyblameworthy, but rather because their limited assets may insulate them from thecontractual sanctions and civil suits at the disposal of firms. Of course, if thefirm's agents become criminally liable, the firm must pay wages to compensateits employees for their greater liability costs and its own vicarious liabilityshould be reduced accordingly. Failure to reduce the firm's liability in thisfashion would distort its activity level and undesirably discourage consumption.Polinsky and Shavell (1993, p. 241).

Next, consider whether firms and agents ought to face liability underprecisely the same circumstances, as they currently do under a traditional regimeof vicarious liability. Polinsky and Shavell (1993, p. 251-253) argue that vicariousliability may often be, in effect, underinclusive, because firms should be strictlyliable for harms associated with their production processes while theiremployees ought to be liable only under a negligence standard. One argumentoffered by Polinsky and Shavell (1993) is that a negligence standard offers astronger incentive for caretaking than strict liability does when agents arepartially insulated from liability by limited assets. Other arguments for anegligence standard include its value in economizing on costly criminalsanctions such as imprisonment, and its potential value in limiting therisk-bearing costs of risk averse corporate agents.

A different issue associated with holding agents and principals liable inprecisely the same circumstances arises when principals are vicariously liable forthe negligence of agents -- as distinct from facing strict liability for theunderlying misconduct (as Polinksy and Shavell (1993) propose). Because anegligence standard governs much of tort law, firms are often strictly liable foremployee negligence under the traditional vicarious liability regime. Butestablishing the negligence of corporate employees who act deep within theenterprise may be extremely difficult without the assistance of the corporateprincipal itself. As Chu and Qian (1995) point out, this juxtaposition of corporateliability and monitoring leads to a familiar problem: vicarious liability gives theprincipal a powerful incentive to withhold monitoring evidence from the courtprecisely because the principal cannot be vicariously liable unless its agent isfound negligent in the first instance. This effect parallels Arlen's (1994) analysisof possible perverse effects associated with vicarious corporate criminal liabilityinsofar as it turns on the difficulty of detecting misconduct (here the agent'snegligence) without enlisting the cooperation of the principal. If the corporateprincipal is made strictly liable for the harm regardless of the agent's negligence(as proposed by Polinsky and Shavell (1993)), the incentive of the corporateprincipal to withhold information about the negligence of its agents may bemitigated. Yet it will not be eliminated entirely as long as monitoring by thecorporate principal increases the probability of corporate liability. Chu and Qian(1995, p. 320).

5. Negligence and Composite Vicarious Liability Regimes

As the preceding discussion indicates, a traditional regime of strict vicariousliability is a relatively rigid rule that, in some circumstances, may fail to satisfyone or both of the fundamental objectives of tort law: providing for theinternalization of tort costs and for the optimal regulation of precautionarymeasures. In most cases strict vicarious liability is congruent with a policy offorcing firms to internalize tort costs. In fact, when principals cannot monitortheir agents' behavior, the only justification for vicarious liability is theinternalization of tort costs and the concomitant regulation of activity levels. Itis possible, however, that principals may be in a position to prevent some formsof misconduct that are not properly assigned to the marginal costs of enterpriseproduction. In this case a negligence rule that imposes liability only whenprincipals fail to take reasonable steps to prevent misconduct may dominatestrict vicarious liability, precisely because such a rule does not charge the fullcost of misconduct to the firm. Sykes (1988, p. 577-579).

In the more conventional case where tort costs are appropriately assignedto the enterprise, a chief drawback of traditional strict liability is the perversemonitoring incentive analyzed by Arlen (1994) and Chu and Qian (1995): that is,the risk that principals will not monitor their agents optimally because doing somight increase their risk of incurring vicarious liability. Here too, as wassuggested in Part 3 above, a negligence standard imposing liability only onprincipals who fail to take reasonable monitoring steps is a natural solution tothe risk of inadequate monitoring under a strict liability regime.

There are, however, important drawbacks to a regime of "negligence-based"vicarious liability, as it is termed by Kramer and Sykes (1987, p. 283). For example,a negligence standard will not regulate activity levels efficiently by assuring thatfirms fully internalize the costs of their torts. In addition, a negligence regime isarguably poorly suited for inducing firms to undertake other kinds of measuresto prevent misconduct -- such as reorganizing production processes -- that donot involve monitoring or affect the principal's risk of incurring liability.

In the case of intentional torts and crimes, Arlen and Kraakman (1997)discuss three types of "mixed" liability regimes that are designed to inducecorporate principals to undertake appropriate monitoring measures (and possiblyto report agent misconduct as well) while simultaneously encouragingpreventive measures and assuring that firms internalize the full costs of theiragents' misconduct. The first type includes regimes that, through use immunityor privilege doctrines, attempt to insulate corporate principals from any increasein their probability of prosecution arising from their internal monitoring andinvestigatory efforts. An example is coupling strict liability for environmentalharms with an environmental audit privilege, to ensure that firms retain theirincentives to undertake such audits. The second type is a regime of strictliability with a variable sanction that declines to offset any increase in theexpected liability that a firm would otherwise from monitoring for employeemisconduct. Finally, the third type includes "composite" regimes that combinea negligence rule to regulate corporate monitoring and investigation ofmisconduct with a residual element of strict liability to ensure that corporateprincipals adopt preventive measures and internalize the costs of agentmisconduct. Here an example is the liability regime created by the U.S. FederalSentencing Guidelines for corporate crimes. See Arlen and Kraakman (1997, pp.745-752).

Arlen and Kraakman (1997) argue that the range of mixed vicarious liabilityregimes - extending from evidentiary privileges through adjusted sanctionregimes to composite regimes - are increasingly costly to administer effectivelybut are also increasingly likely to satisfy the multiple enforcement objectives ofa vicarious liability regime. To be sure, some commentators oppose any resortto a negligence standard to supplement strict liability (as is necessary in acomposite regime) on the grounds that judicial error in administering thestandard will inevitably create liability in excess of the social cost of misconduct.Fischel and Sykes (1996, p. 328-329). This effect, however, can be ameliorated bydownwardly adjusting the composite liability regime's residual liability level.

It follows that the traditional American rule of strict vicarious liability is well-suited to the ordinary cast in which the costs of agent misconduct areappropriately charged to the principal and misconduct is unlikely to escapedetection. Whenever one of these conditions fails, however, strict vicariousliability may be dominated by either negligence-based vicarious liability or amixed regime that includes elements of both strict and negligence-based liability.

6. Reaching Beyond the Principal: Alternative Liability Targets

Traditional vicarious liability makes the legal "principal" liable for her agent'storts. But other actors besides the principal may also be in a position to monitorsafety precautions or thwart third-party misconduct: for example, seniormanagers within the firm who supervise lower-level employees; or the lawyers,accountants, and underwriters who facilitate fraudulent public issues ofsecurities. In fact, secondary liability (if not necessarily traditional strictvicarious liability) for the torts and delicts of primary wrongdoers is a commonlegal control strategy well outside the domain of principal-agent relationships.

In some cases, the secondary liability of parties other than the organizationalprincipal or enterprise serves as a backstop for traditional vicarious liability. Forexample, Kraakman (1984a; 1984b) argues that the personal liability of corporatemanagers for garden-variety torts protects against the possible inadequacy ofcorporate assets to satisfy the firm's liability. Thus, in a reversal of the traditionaljustification for vicarious liability discussed above in Part 1, Kraakman (1984a,p. 869-871; 1984b) suggests that most personal liability of managers forcorporate torts should be understood as protecting tort victims againstundercapitalized firms rather than agents, since well-capitalized firms invariablyinsulate their managers from liability through insurance or indemnificationcontracts.

In some cases, however, the law blocks the indemnification of managers fortheir own misconduct or extends liability for corporate misconduct to a broadercircle of influential actors beyond the group of top managers, such as outsidedirectors and accountants associated with companies. Kraakman (1984a; 1984b)describes this as a "gatekeeper strategy" that is designed to augment potentiallyinadequate levels of liability imposed on the firm itself. Thus, just as vicariouscorporate liability can enhance legal controls over judgment-proof agents, so inextreme cases the personal liability of corporate managers, directors, and evenoutside directors can partially offset the inadequacy of corporate liability.

In addition, the potential uses of secondary liability, whether civil or criminal,and the value of the gatekeeper strategy, extend well beyond the corporateenterprise. An important research agenda turns on identifying contexts wherethese liability strategies are or are not cost effective. Kraakman (1986) examinesseveral considerations bearing on the costs and benefits of imposing secondaryliability on a contracting party in order to deter or prevent the misconduct of thecounter-party to the contractual relationship. The chief enforcement tool at thedisposal of a private "gatekeeper" is the power to withhold goods, services, orfacilitation from a counter-party engaged in risky or suspect behavior, just as theprincipal's chief incentive device in the traditional agency relationship is thethreat to fire an agent who engages in risky behavior. Moreover, whethergatekeeper liability is likely to prevent misconduct depends in part on the sameconsiderations that contribute to an effective regime of vicarious liability, suchas the assets and the expertise of the gatekeeper relative to those of the potentialtortfeasor. But especially in the case of intentional misconduct, the efficacy ofgatekeeping turns in large part on how easily would-be wrongdoers can contractaround honest gatekeepers who withhold their services from suspect endeavors.Kraakman (1986, p. 66-74).

Several commentators have undertaken more particularized assessments ofthe costs and benefits of gatekeeper liability for individual classes of strategicgatekeepers. For example, Franzoni (1996) examines gatekeeper enforcement oftax laws through imposing liability on auditors. Choi (1998) offers a skepticalanalysis of the costs and benefits of gatekeeper liability imposed onunderwriters in the securities market. Jackson (1993) and Wilkins (1993) considergatekeeper liability imposed on lawyers in the context of banking regulations.

7. Corporate Civil Liability Versus Criminal Liability

The vicarious liability regime that accounts for most corporate liability in theUnited States makes no distinction between civil and criminal liability. It iswell-accepted that when corporate agents commit crimes within the scope oftheir employment, firms can be criminally prosecuted on a theory of vicariousliability -- just as firms are vicariously liable for the civil torts of their agents.Recent literature on vicarious liability, however, questions the value of imposingspecifically criminal liability on corporate principals, as distinct from imposingvicarious civil liability for the criminal acts of corporate agents.

The critique of corporate criminal liability proceeds on several fronts. Fischeland Sykes (1996, p. 322-324) point out that the specifically criminal sanction ofincarceration is unavailable against corporations, and that the criminal lawobjective of incapacitating criminals though incarceration makes little sense inthe context of corporate liability. Equally important, Fischel and Sykes (1996)argue, criminal sanctions are uncalibrated to the level of harm associated withcrime, which may be appropriate to penalties imposed on individuals but isinappropriate to penalties operating on the corporate level.

Criminal penalties imposed on individuals for intentional crimes such asmurder create little risk of overdeterrence: less murder is always better. Butpenalties imposed on the corporate level lack this character, precisely becausethey are corporate penalties. Corporations are, in Fischel and Sykes' (1996, p.323) phrase, "webs of contractual relationships consisting of individuals whoban together for their mutual economic benefit." Corporate crimes typicallyinvolve actions committed by some corporate agents without the knowledge andapproval of others. It follows that the primary function of penalties imposed onthe corporate level is not to deter in the conventional sense but to induce firmsto monitor their agents and prevent crimes: that is, the classic justification forvicarious liability. See Fischel and Sykes (1996, p.324) and Parker (1996). Thebaseline penalty imposed on the corporation, then, should be civil liability equalto the social cost of crime discounted to reflect its probability of detection.

A second critique of corporate criminal liability does not question penaltylevels per se but asks: Why prefer criminal penalties over equivalently scaledcivil liability? The feature that arguably distinguishes criminal sanctions on thecorporate level -- social stigma and reputational loss -- render these penaltiesless predictable and more costly than parallel civil penalties. See Karpoff andLott (1993) and Khanna (1996, p.1501-1512). Moreover, in most cases, theadministration costs of criminal prosecution are likely to be larger than the costsof civil lawsuits by government agencies. Khanna (1996, p. 1512-1531).

In light of these multiple critiques of corporate criminal liability, thejustification for vicarious criminal liability for corporate principals -- or principalsmore generally -- remains an important topic for future research. If no plausiblejustification can be found, the implications for law reform are clear: vicariouscorporate liability should be decriminalized.

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Other References

Landes, William M. and Posner, Richard A. (1987), The Economic Structure of Tort Law.

Shavell, Steven (1987), Economic Analysis of Accident Law, Cambridge (MA), HarvardUniversity Press.

Shavell, Steven (1980), 'Strict Liability Versus Negligence', 9 Journal of Legal Studies, 1-25.

Restatement (Second) Of Agency (1958), American Law Institute.

© Copyright 1998 Reinier H. Kraakman