NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Publications by Yeon-Koo Che

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

Working Papers and Chapters

July 2008Strategic Judgment Proofing
with Kathryn E. Spier: w14183
A liquidity-constrained entrepreneur needs to raise capital to finance a business activity that may cause injuries to third parties -- the tort victims. Taking the level of borrowing as fixed, the entrepreneur finances the activity with senior (secured) debt in order to shield assets from the tort victims in bankruptcy. Interestingly, senior debt serves the interests of society more broadly: it creates better incentives for the entrepreneur to take precautions than either junior debt or outside equity. Unfortunately, the entrepreneur will raise a socially excessive amount of senior debt. Giving tort victims priority over senior debtholders in bankruptcy prevents over-leveraging but leads to suboptimal incentives. Lender liability exacerbates the incentive problem even further. A Limited Se...
February 1991Decoupling Liability: Optimal Incentives for Care and Litigation
with A. Mitchell Polinsky: w3634
A "decoupled" liability system is one in which the award to the plaintiff differs from the payment by the defendant. The optimal system of decoupling makes the defendant's payment as high as possible. Such a policy allows the award to the plaintiff to be lowered, thereby reducing the plaintiff's incentive to sue -- and hence litigation costs -- without sacrificing the defendant's incentive to exercise care. The optimal award to the plaintiff may be less than or greater than the optimal payment by the defendant. The possibility of an out-of-court settlement does not qualitatively affect these results. If the settlement can be monitored, it may be desirable to decouple it as well.

Contact and additional information for this authorAll papers and publicationsWorking Papers onlyWorking Papers with publication info

 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us