Successor Liability and Asymmetric Information

Author: Choi, Albert H.

Source: American Law and Economics Review, Volume 9, Number 2, Fall 2007 , pp. 408-434(27)

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Abstract:

The doctrine of successor liability transfers tort liability arising from the seller's past conduct from the seller to the buyer. If the buyer has as much information about the liability as the seller, all beneficial acquisitions take place and the seller takes the efficient level of precaution. However, if the seller has more information about the liability than the buyer, not all beneficial acquisitions are consummated and the seller takes a suboptimal level of precaution. I argue that, in the presence of information asymmetry, the courts should increase the damages against the (potential) seller to provide better incentives to take precaution while decreasing the damages against the buyer to encourage more beneficial asset sales.

Keywords: K13; K22; K32

Document Type: Research article

DOI: http://dx.doi.org/10.1093/aler/ahm013

Publication date: 2007-09-01

More about this publication?

The rise of the field of law and economics has been extremely rapid over the last 25 years. Among important developments of the 1990s has been the founding of the American Law and Economics Association. The creation and rapid expansion of the ALEA and the creation of parallel associations in Europe, Latin America, and Canada attest to the growing acceptance of the economic perspective on law by judges, practitioners, and policy-makers.