You can’t always use liability to internalise all the externality because e.g. you can’t effectively sue companies for more than they have, and for some companies that stay afloat by regular fundraising rounds, that may not even be that much? like, if they’re considering an action that is a coinflip between “we cause some huge liability” and “we triple the value of our company” then it’s usually going to be correct from a shareholder perspective to take it, no matter the size of the liability, right?
Criminal law has the ability to increase the deterrent somewhat – probably many people will not accept any amount of money for a significant enough chance of prison – though obviously it’s not perfect either
OP doesn’t emphasize liability insurance enough but part of the hope is that you can mandate that companies be insured up to $X00 billion, which costs them less than $X00 billion assuming that they’re not likely to be held liable for that much. Then the hope is the insurance company can say “please don’t do extremely risky stuff or your premium goes up”.
You can’t always use liability to internalise all the externality because e.g. you can’t effectively sue companies for more than they have, and for some companies that stay afloat by regular fundraising rounds, that may not even be that much? like, if they’re considering an action that is a coinflip between “we cause some huge liability” and “we triple the value of our company” then it’s usually going to be correct from a shareholder perspective to take it, no matter the size of the liability, right?
Criminal law has the ability to increase the deterrent somewhat – probably many people will not accept any amount of money for a significant enough chance of prison – though obviously it’s not perfect either
OP doesn’t emphasize liability insurance enough but part of the hope is that you can mandate that companies be insured up to $X00 billion, which costs them less than $X00 billion assuming that they’re not likely to be held liable for that much. Then the hope is the insurance company can say “please don’t do extremely risky stuff or your premium goes up”.