| In the legal system, liability is used to compensate injured parties; when it is efficient, liability also serves to act as deterrent against potential injurers. This dissertation considers a situation where a firm's current operations creates a negative future externality, so the liability resulting from this externality occurs with a lag.; While some of the problems associated with lagged liabilities have been analyzed in connection with the literature discussing retroactive liability, joint and several liability, and judgment-proofing, there has been no explicit analysis of lagged liabilities in the law and economics literature.; A simple model of lagged liability is developed using the firm's current activity level as a determinant of the amount of future [strict] liability. Treating liabilities as externalities arising from production rather than treating liabilities as something that results from accidents is an area that had been largely ignored in the law and economics field. This is in spite of extensive analysis of externalities in the environmental economics literature. This dissertation attempts to bridge that gap in the literature.; Four different behavioral models for the firm are analyzed: the myopic firm, that fails to recognize the future liability, the forward-looking firm, the firm engaging in looting-behavior, and the firm able to employ technology to delay liability.; The conditions under which the firm can become judgement proof and escape liabilities are examined including the use of ordinary dissolution in place of bankruptcy. The effect of liability (and lack thereof), lag time, and firm's foresight on the level of firm activity are analyzed followed by the effects of retroactive liability, statutes of limitation and repose, looting behavior, and "precautionary" measures that delay liability.; The basic model is then extended to include uncertainty, which in some cases acts to limit the deterrent effect of liability. In other cases, uncertainty may reduce the effectiveness of liability-reducing measure such as statutes of repose depending on the timing of various aspects of the problem.; Finally, various alternatives to liability including regulation, taxation, and bonding are examined. No definitive policy recommendations are made; however, several areas of concern to policymakers are identified. |
