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As long as the nature of punishment is a fine, it can be modeled and a cost-benefit analysis can be performed. If the forecasted economic benefit exceeds the c
by TAForObvReasons 7y ago
As long as the nature of punishment is a fine, it can be modeled and a cost-benefit analysis can be performed. If the forecasted economic benefit exceeds the cost, then the action should be taken, or so the theory goes.
This happens in all industries. Part of the reason many legal settlements lead to a massive jump in stock price is that companies reserve funds for expected litigation. If FB models the settlement cost to $1B and it turns out to be $550M, that's a good result
- zamfi 7y ago> As long as the nature of punishment is a fine, it can be modeled and a cost-benefit analysis can be performed. If the forecasted economic benefit exceeds the cost, then the action should be taken, or so the theory goes. The theory has limits though. If, in discovery, prosecutors find out that the company intentionally did something illegal because it believed that the cost of the fine was less than the benefit of the illegal action, then the fine is usually much higher and the specific executives involved often face much stiffer penalties.
- octodog 7y agoDo you know of any examples when that has actually happened? Genuinely curious, because I can't think of any.
- 1123581321 7y agoThere is a difference between an intentional plot to commit one specific illegal act or tort, and recognition that torts and misbehavior will happen in a large enough organization and budgeting/insuring for it. This happens whether or not it’s believed paying damages is cheaper than fixing the problems.
- zamfi 7y agoAgreed. I didn't say the theory was invalid, just that it has limits!
- 1123581321 7y agoTrue! Sorry about that.