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Megan McArdle

Be Glad That Corporate Liability Is Limited

Why won't unlimited liability work? Let me count the ways.
Limited liability keeps us from spending all of our time -- and money -- in a courthouse. Photographer: Butch Dill/Bloomberg
Limited liability keeps us from spending all of our time -- and money -- in a courthouse. Photographer: Butch Dill/Bloomberg

If you run in libertarian circles, you hear a lot about lawsuits. It's the obvious recourse for anyone who wants less regulation but can't bring themselves to insist that, say, chemical companies should be allowed to dump toxic waste into your water supply. If you stick around long enough, you'll hear someone advocate eliminating limited liability entirely: making corporate owners liable for anything that a firm ever did.

It's an idea I've always found intriguing. And because it popped up in the comments to this post (from a nonlibertarian), and because it's Friday, I thought it worth explaining exactly why it's unworkable.