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代理人的和法人的民事责任

 VICARIOUS AND CORPORATE CIVIL LIABILITY

Reinier H. Kraakman

Professor of Law, Harvard Law School

© Copyright 1999 Reinier H. Kraakman

 

Abstract

Vicarious liability is the strict liability of a principal for the misconduct of her

agent. This chapter reviews six areas of commentary on vicarious and corporate

civil liability. It begins by formulating the standard case for vicarious liability

based on the likely insolvency of the firm’s culpable agents in the face of

massive liability for business torts. Next, it addresses cost considerations that

militate against imposing vicarious liability on the corporation in some

circumstances, and the relationship between corporate liability the structure of

liability imposed on corporate agents. Two additional sections of the article

review alternatives to traditional vicarious liability regimes, including

alternative liability rules for corporate principals (notably a negligence rule)

and alternative targets for liability besides the firm (notably top corporate

managers). Finally, the chapter reviews recent literature on the distinction

between corporate civil and criminal liability. It concludes that the case made

out thus for distinguishing between these too forms of corporate liability is

weak.

JEL classification: K13, K22, K42

Keywords: Vicarious 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 whose

activities she directs. As such, traditional vicarious liability is a form of strict

secondary liability, in contrast to secondary liability imposed on principals or

other parties under a duty-based standard such as negligence. In the common

law, the legal doctrine of respondent superior is the principal vehicle for

holding principals liable for the torts and other delicts of their agents. Under

this doctrine, principals are jointly and severally liable for the wrongs

committed within the ‘scope of employment’ by agents whose behavior they

have the legal right 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.

To be sure, corporate liability may also be direct, as when the independent

actions of several corporate agents cumulatively result in a business tort,

although no single agent is individually culpable. But even in this case, the

liability of corporate principals is best conceptualized as vicarious liability for

the failure of the firm’s management to supervise its employees.

 

An overview of the literature on vicarious and corporate civil liability must

address at least six areas of commentary: (a) the standard case for strict

vicarious liability; (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 for

vicarious 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 Coasian

question: why should an allocation of liability between principals and agents

matter if these parties are able to reallocate liability among themselves by

agreement? The fundamental analysis of vicarious liability, developed with the

aid of principal-agent models by Kornhauser (1982) and Sykes (1981, 1984),

looks to the insolvency of agents and to limitations on the ability of the parties

to shift liability as the basic conditions favoring vicarious liability. As a general

matter, Kornhauser (1982), Sykes (1984) and Shavell (1987) agree that

vicarious liability for ordinary torts is more likely to increase social welfare as

the disparity between agent assets and the magnitude of prospective tort

liability increases. By contrast, where tort liability would leave both principals

and agents solvent and the costs of negotiating between principals and agents

are slight, vicarious liability is likely to have few efficiency consequences (for

example, Kornhauser, 1982, pp. 1351-1352; 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 considerations

that weigh in favor of vicarious liability when agents are insolvent but

corporate principals are not.

 

To begin, vicarious liability is increasingly likely to be efficient as

principals have greater ability to monitor or otherwise control agent risk-taking.

The analysis is straightforward. Absent vicarious liability, personal liability

gives insolvent agents insufficient incentive to take care, since they lack the

wealth to pay tort damages (Sykes, 1981, p. 168; Shavell, 1987, pp. 170-171).

Moreover, their principals have no incentive to urge greater care, since the only

liability cost faced by principals (in the absence of secondary liability) is the

wage cost of offsetting the expected liability of their agents. Thus, insolvent

agents under a regime of purely personal liability will lead firms to take too

little care and to initiate too much risky activity or misconduct. By contrast,

principals who are vicariously liable and face the full expected cost of tort

damages will seek to control their agents to ensure optimal precautionary

measures.

 

The traditional doctrine of respondent superior is fully in accord with this

analysis since it appears to tie vicarious liability explicitly to the principal’s

costs of monitoring or otherwise controlling employee behavior (Landes and

Posner, 1987, p. 208). For example, agency law determines the principal’s tort

liability based not only on her capacity to monitor her agent’s actions but also

on her ability to contractually alter her agent’s incentives, as when the scope

of employment rules condition vicarious liability on whether the culpable agent

acted, at least in part, to benefit his principal (Restatement (Second) of Agency,

1958, §228(1) (c)).

 

Apart from inducing principals to control agent misconduct through

monitoring and preventive measures, vicarious liability can also force

principals to internalize the costs of misconduct when agents are judgmentproof.

In the private sector, at least, forcing firms to internalize the costs of

misconduct that accompany their productive activity leads, other things being

equal, to an efficient scale of production by bringing the private costs of

production into line with the social costs (for example, Shavell, 1980; Kramer

and Sykes, 1987, p. 286). Thus, even if corporate principals cannot control

caretaking by agents, vicarious liability can ensure that they at least face the

full expected costs of accidents or wrongdoing, and thus do not undertake too

much risky activity - providing, of course, that their agents are also strictly

liable for the underlying harms at issue (Polinsky and Shavell, 1993).

 

As Shavell (1987, pp. 173-174) notes, moreover, several other

considerations favor a rule of corporate vicarious liability as well, especially

when contracting between principals and agents is constrained and there are

limitations such as solvency on the effective liability faced by agents. First,

principals may be better informed than agents about accident risks, or better

able to limit these risks by reorganizing the workplace. Second, principals - and

particularly firms - may be better able to monitor and discipline agents than the

courts. Thus, vicarious liability may be socially advantageous if principals are

less likely than courts to err in reviewing agent conduct. Third, principals may

be more attractive targets of liability as a consequence of what Kornhauser

(1982, pp. 1370-1371) terms the problem of ‘multiple agents’. That is, an

outside plaintiff may find the task of determining 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 faces liability, it may be able to locate and

discipline the culpable agent - or, even if it cannot, it may be able to reduce tort

costs through other means such as training programs or screening measures.

Fourth, as most commentators acknowledge, shifting liability to principals

under a vicarious liability rule is likely to reduce risk bearing costs, at least in

the paradigmatic case where agents are risk averse or insolvent, principals are

firms, and victims are risk-averse individuals (for example, Kramer and Sykes,

1987, p. 278; Chapman, 1996).

 

Finally, in addition to the justifications for vicarious liability resting on the

assumption of rational, utility-maximizing actors, some commentators have

proposed justifications based on limited or defective rationality, particularly on

the part of corporate agents (for example, Croley, 1996; Schwartz, 1996a). In

these accounts, defective rationality blunts the incentive effects of liability on

wayward agents, much as insolvency, or external constraints on sanctions,

limits the power of liability to deter agents in more conventional accounts of

vicarious liability.

 

3. Factors Militating Against Strict Vicarious Liability

 

Although the standard considerations favoring vicarious liability make a

persuasive case in many circumstances, they also point to several factors that

militate against vicarious liability. Agents who are well capitalized, especially

in relationship to their putative principals, are better left to bear full personal

liability for business torts on both incentive and risk bearing grounds. As

Shavell (1987, p. 174) argues, outside the conventional context of large

enterprises and their employees, ‘there is no natural presumption’ about the

comparative capitalization of principals and agents - or about the ability of

principals to observe the loss avoidance behavior of agents. Imposing liability

on principals who cannot monitor their agents is unlikely to reduce accident

costs and, as Sykes (1984, p. 1249) notes, may actually decrease safety by

lowering the expected liability of agents for their own negligence. Finally, most

commentators agree that whatever the advantages of vicarious liability, it

clearly increases administrative costs by including additional defendants in tort

actions.

 

Even in the context of large firms, where the case for vicarious liability is

generally strongest, it is arguably inappropriate under some circumstances. One

example arises when senior managers intentionally release fraudulent

information into the capital market in order to protect their jobs or secure

personal benefits. As Arlen and Carney (1992) note, vicarious liability may

have little deterrent effect when top managers charged with supervising the

firm act on their own behalf in committing misconduct, particularly when these

managers are in an end game because the firm faces likely bankruptcy. Further,

the risk-bearing rationale for imposing liability on the firm rather than on its

agents is weak for such self-conscious misconduct because managers can avoid

risk of liability simply by refraining from making misleading statements.

Finally, the firm liable for damages inflicted by its top managers on a subset of

its own investors has perverse consequences. Absent strong evidence that such

liability leads managers to monitor one another, its effect is simply to shift

assets (net of litigation expenses) from one class of innocent investors to

another.

 

Arlen (1994) also identifies a second circumstance in which holding firms

vicariously liable for the intentional wrongdoing of agents can generate

perverse incentives and increase enforcement costs. In cases where misconduct

is difficult to detect, the firm may enjoy a comparative advantage over outsiders

in monitoring for it. Yet the firm will not monitor optimally under a vicarious

liability regime - and may not monitor at all - if the information that the firm

acquires can be used to increase its own probability of incurring liability. The

reason is straightforward: increased monitoring lowers the firm’s expected

liability costs by raising its ability to deter or prevent misconduct, but increased

monitoring also 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 that she identifies clearly extends to vicarious civil liability for

torts that may be difficult to detect without monitoring by the principal.

 

A related observation, made in Arlen and Kraakman (1997, pp. 712-717),

is that a credibility problem may arise where strict vicarious liability is used to

induce firms to monitor or investigate misconduct. The nub of the problem is

that, absent a commitment device such as reputation, firms may not have an

incentive to actually monitor, or to investigate and report misconduct after it

has occurred. While credible threats to implement these measures would deter

misconduct, the measures themselves add nothing under a vicarious liability

rule except enforcement costs and enhanced liability risks for firms. The

danger, then, is that some firms may not be able to make credible enforcement

threats - even if they intend to carry them out - because wayward agents rightly

suspect that actually implementing these enforcement measures would be acting

against interest. By contrast, an element of duty-based liability such as a

negligence rule can assure the credibility of enforcement threats, just as it can

overcome the perverse effects associated with traditional vicarious liability

(Arlen and Kraakman, 1997, pp. 717-718).

 

Lastly, a novel set of problems associated with strict vicarious liability arises

in the context of government bodies and certain non-profits that are not subject

to ordinary market constraints. While the aims of inducing optimal caretaking,

self-policing, and efficient risk-bearing arguably support vicarious liability for

such non-market entities just as they do for business corporations, the argument

for this liability rule based on the need to regulate activity levels does not (see

Kramer and Sykes, 1987, pp. 278-283). It is simply unclear how cost

internalization affects the scale of the non-market enterprise - it might yield too

much or too little activity (Kramer and Sykes, 1987, p. 286). For this reason,

a duty-based or negligence-based liability regime might be preferred to strict

vicarious 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

perverse incentive and credibility problems are severe.

 

4. The Interaction between Principal and Agent Liability

 

An important question in the literature concerns the relationship between

vicarious liability and the regime under which the principal’s agent incurs

personal liability. Vicarious liability is a form of strict liability: the principal

is absolutely liable for the delicts of the agent as if the principal actually were

the agent. Moreover, the agent and the principal share exactly the same

liability: the principal simply steps into the shoes of the agent. Yet both of these

dimensions of the traditional vicarious liability regime are open to challenge

in many circumstances.

 

Consider first whether the agent and the principal should face the same

liability. In the standard case where the principal is an enterprise, the agent is

an employee, and the agent’s actions trigger significant liability, a rule of

vicarious liability generally makes the enterprise rather than the agent liable as

a practical matter (Kraakman, 1984a; 1984b). At most, the culpable agent faces

the loss of his 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 the agency problem of overcompliance that might otherwise

arise as managers sought to reduce their risk of personal liability.

 

As Polinsky and Shavell (1993) observe, however, the opposite problem

may also arise: the firm may not be able to administer private sanctions severe

enough to induce its employees to take optimal care where the social costs of

torts are large. Thus, it may be appropriate to not only sanction employees but

to administer criminal sanctions such as fines and imprisonment, even when

the firm remains liable for only civil damages. Polinsky and Shavell (1993)

propose criminal liability for employees, then, not because employees are

inherently blameworthy, but rather because their limited assets may insulate

them from the contractual sanctions and civil suits at the disposal of firms. Of

course, if the firm’s agents become criminally liable, the firm must pay wages

to compensate its employees for their greater liability costs and its own

vicarious liability should be reduced accordingly. Failure to reduce the firm’s

liability in this fashion 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 under

precisely the same circumstances as they currently do under a traditional

regime of vicarious liability. Polinsky and Shavell (1993, pp. 251-253) argue

that vicarious liability may often be, in effect, underinclusive, because firms

should be strictly liable for harms associated with their production processes

while their employees ought to be liable only under a negligence standard. One

argument offered by Polinsky and Shavell (1993) is that a negligence standard

offers a stronger incentive for caretaking than strict liability does when agents

are partially insulated from liability by limited assets. Other arguments for a

negligence standard include its value in economizing on costly criminal

sanctions such as imprisonment, and its potential value in limiting the

risk-bearing costs of risk averse corporate agents.

 

A different issue associated with holding agents and principals liable in

precisely the same circumstances arises when principals are vicariously liable

for the negligence of agents - as distinct from facing strict liability for the

underlying misconduct (as Polinksy and Shavell, 1993, propose). Because a

negligence standard governs much of tort law, firms are often strictly liable for

employee negligence under the traditional vicarious liability regime. But

establishing the negligence of corporate employees who act deep within the

enterprise may be extremely difficult without the assistance of the corporate

principal itself. As Chu and Qian (1995) point out, this juxtaposition of

corporate liability and monitoring leads to a familiar problem: vicarious

liability gives the principal a powerful incentive to withhold monitoring

evidence from the court precisely because the principal cannot be vicariously

liable unless its agent is found negligent in the first instance. This effect

parallels Arlen’s (1994) analysis of possible perverse effects associated with

vicarious corporate criminal liability insofar as it turns on the difficulty of

detecting misconduct (here the agent’s negligence) without enlisting the

cooperation of the principal. If the corporate principal is made strictly liable for

the harm regardless of the agent’s negligence (as proposed by Polinsky and

Shavell, 1993), the incentive of the corporate principal to withhold information

about the negligence of its agents may be mitigated. Yet it will not be

eliminated entirely as long as monitoring by the corporate 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 vicarious

liability is a relatively rigid rule that, in some circumstances, may fail to satisfy

one or both of the fundamental objectives of tort law: providing for the

internalization of tort costs and for the optimal regulation of precautionary

measures. In most cases strict vicarious liability is congruent with a policy of

forcing firms to internalize tort costs. In fact, when principals cannot monitor

their agents’ behavior, the only justification for vicarious liability is the

internalization of tort costs and the concomitant regulation of activity levels.

It is possible, however, that principals may be in a position to prevent some

forms of misconduct that are not properly assigned to the marginal costs of

enterprise production. In this case a negligence rule that imposes liability only

when principals fail to take reasonable steps to prevent misconduct may

dominate strict vicarious liability, precisely because such a rule does not charge

the full cost of misconduct to the firm (Sykes, 1988, pp. 577-579).

 

In the more conventional case where tort costs are appropriately assigned

to the enterprise, a chief drawback of traditional strict liability is the perverse

monitoring incentive analyzed by Arlen (1994) and Chu and Qian (1995): that

is, the risk that principals will not monitor their agents optimally because doing

so might increase their risk of incurring vicarious liability. Here too, as was

suggested in Section 3 above, a negligence standard imposing liability only on

principals who fail to take reasonable monitoring steps is a natural solution to

the 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 that firms fully internalize the costs of their torts. In addition, a

negligence regime is arguably poorly suited for inducing firms to undertake

other kinds of measures to prevent misconduct - such as reorganizing

production processes - that do not 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 induce

corporate principals to undertake appropriate monitoring measures (and

possibly to report agent misconduct as well) while simultaneously encouraging

preventive measures and assuring that firms internalize the full costs of their

agents’ misconduct. The first type includes regimes that, through use immunity

or privilege doctrines, attempt to insulate corporate principals from any

increase in their probability of prosecution arising from their internal

monitoring and investigatory efforts. An example is coupling strict liability for

environmental harms with an environmental audit privilege, to ensure that

firms retain their incentives to undertake such audits. The second type is a

regime of strict liability with a variable sanction that declines to offset any

increase in the expected liability that a firm would otherwise from monitoring

for employee misconduct. Finally, the third type includes ‘composite’ regimes

that combine a negligence rule to regulate corporate monitoring and

investigation of misconduct with a residual element of strict liability to ensure

that corporate principals adopt preventive measures and internalize the costs

of agent misconduct. Here an example is the liability regime created by the US

Federal Sentencing Guidelines for corporate crimes (see Arlen and Kraakman,

1997, pp. 745-752).

 

Arlen and Kraakman (1997) argue that the range of mixed vicarious

liability regimes - extending from evidentiary privileges through adjusted

sanction regimes to composite regimes - are increasingly costly to administer

effectively but are also increasingly likely to satisfy the multiple enforcement

objectives of a vicarious liability regime. To be sure, some commentators

oppose any resort to a negligence standard to supplement strict liability (as is

necessary in a composite regime) on the grounds that judicial error in

administering the standard will inevitably create liability in excess of the social

cost of misconduct (Fischel and Sykes, 1996, pp. 328-329). This effect,

however, can be ameliorated by downwardly 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 are

appropriately charged to the principal and misconduct is unlikely to escape

detection. Whenever one of these conditions fails, however, strict vicarious

liability may be dominated by either negligence-based vicarious liability or a

mixed 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’s

torts. But other actors besides the principal may also be in a position to monitor

safety precautions or thwart third-party misconduct: for example, senior

managers within the firm who supervise lower-level employees; or the lawyers,

accountants and underwriters who facilitate fraudulent public issues of

securities. In fact, secondary liability (if not necessarily traditional strict

vicarious liability) for the torts and delicts of primary wrongdoers is a common

legal control strategy well outside the domain of principal-agent relationships.

In some cases, the secondary liability of parties other than the

organizational principal or enterprise serves as a backstop for traditional

vicarious liability. For example, Kraakman (1984a, 1984b) argues that the

personal liability of corporate managers for garden-variety torts protects against

the possible inadequacy of corporate assets to satisfy the firm’s liability. Thus,

in a reversal of the traditional justification for vicarious liability discussed

above in Section 1, Kraakman (1984a, pp. 869-871; 1984b) suggests that most

personal liability of managers for corporate torts should be understood as

protecting tort victims against undercapitalized firms rather than agents, since

well-capitalized firms invariably insulate their managers from liability through

insurance or indemnification contracts.

 

In some cases, however, the law blocks the indemnification of managers for

their own misconduct or extends liability for corporate misconduct to a broader

circle of influential actors beyond the group of top managers, such as outside

directors and accountants associated with companies. Kraakman (1984a,

1984b) describes this as a ‘gatekeeper strategy’ that is designed to augment

potentially inadequate levels of liability imposed on the firm itself. Thus, just

as vicarious corporate liability can enhance legal controls over judgment-proof

agents, so in extreme cases the personal liability of corporate managers,

directors, and even outside 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

corporate enterprise. An important research agenda turns on identifying

contexts where these liability strategies are or are not cost effective. Kraakman

(1986) examines several considerations bearing on the costs and benefits of

imposing secondary liability on a contracting party in order to deter or prevent

the misconduct of the counter-party to the contractual relationship. The chief

enforcement tool at the disposal of a private ‘gatekeeper’ is the power to

withhold goods, services, or facilitation from a counter-party engaged in risky

or suspect behavior, just as the principal’s chief incentive device in the

traditional agency relationship is the threat to fire an agent who engages in

risky behavior. Moreover, whether gatekeeper liability is likely to prevent

misconduct depends in part on the same considerations that contribute to an

effective regime of vicarious liability, such as the assets and the expertise of the

gatekeeper relative to those of the potential tortfeasor. But especially in the case

of intentional misconduct, the efficacy of gatekeeping turns in large part on

how easily would-be wrongdoers can contract around honest gatekeepers who

withhold their services from suspect endeavors (Kraakman, 1986, pp. 66-74).

 

Several commentators have undertaken more particularized assessments of

the costs and benefits of gatekeeper liability for individual classes of strategic

gatekeepers. For example, Franzoni (1996) examines gatekeeper enforcement

of tax laws through imposing liability on auditors. Choi (1998) offers a

skeptical analysis of the costs and benefits of gatekeeper liability imposed on

underwriters in the securities market. Jackson (1993) and Wilkins (1993)

consider gatekeeper 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 the

United States makes no distinction between civil and criminal liability. It is

well-accepted that when corporate agents commit crimes within the scope of

their employment, firms can be criminally prosecuted on a theory of vicarious

liability - just as firms are vicariously liable for the civil torts of their agents.

Recent literature on vicarious liability, however, questions the value of

imposing specifically criminal liability on corporate principals, as distinct from

imposing vicarious civil liability for the criminal acts of corporate agents.

 

The critique of corporate criminal liability proceeds on several fronts.

Fischel and Sykes (1996, pp. 322-324) point out that the specifically criminal

sanction of incarceration is unavailable against corporations, and that the

criminal law objective of incapacitating criminals though incarceration makes

little sense in the context of corporate liability. Equally important, Fischel and

Sykes (1996) argue, criminal sanctions are uncalibrated to the level of harm

associated with crime, which may be appropriate to penalties imposed on

individuals but is inappropriate to penalties operating on the corporate level.

 

Criminal penalties imposed on individuals for intentional crimes such as

murder create little risk of overdeterrence: less murder is always better. But

penalties imposed on the corporate level lack this character, precisely because

they are corporate penalties. Corporations are, in Fischel and Sykes’s (1996, p.

323) phrase, ‘webs of contractual relationships consisting of individuals who

ban together for their mutual economic benefit’. Corporate crimes typically

involve actions committed by some corporate agents without the knowledge and

approval of others. It follows that the primary function of penalties imposed on

the corporate level is not to deter in the conventional sense but to induce firms

to monitor their agents and prevent crimes: that is, the classic justification for

vicarious liability (see Fischel and Sykes, 1996, p. 324; Parker, 1996). The

baseline penalty imposed on the corporation, then, should be civil liability equal

to the social cost of crime discounted to reflect its probability of detection.

 

A second critique of corporate criminal liability does not question penalty

levels per se but asks: why prefer criminal penalties over equivalently scaled

civil liability? The feature that arguably distinguishes criminal sanctions on the

corporate level - social stigma and reputational loss - render these penalties less

predictable and more costly than parallel civil penalties (see Karpoff and Lott,

1993; Khanna, 1996, pp. 1501-1512). Moreover, in most cases, the

administration costs of criminal prosecution are likely to be larger than the

costs of civil lawsuits by government agencies (Khanna, 1996, pp. 1512-1531).

 

In light of these multiple critiques of corporate criminal liability, the

justification for vicarious criminal liability for corporate principals - or

principals more generally - remains an important topic for future research. If

no plausible justification can be found, the implications for law reform are

clear: vicarious corporate liability should be decriminalized.

 


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