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Because without limited liability there is a MUCH smaller incentive to start a company. There are plenty of good intros as to how the invention of limited liabi
by arjunnarayan 13y ago
Because without limited liability there is a MUCH smaller incentive to start a company. There are plenty of good intros as to how the invention of limited liability really was the beginning of modern economic takeoff. I recommend
Ascent of Money" by Niall Ferguson for a good intro.
- rayiner 13y agoSure, but why is that smaller incentive not the right amount of incentive? You can create incentives for a lot of things, but generally those are distortionary. What economic justification is there for the idea that there needs to be a bigger incentive than the market provides?
- arjunnarayan 13y agoThat's an empirical question, and deserves an empirical treatment. I cannot do that in a comment. Luckily, this question has been thoroughly investigated for almost two centuries. If you want a serious treatment, you might look to: http://www.jstor.org/stable/825483?seq=2 http://www.jstor.org/stable/825483?seq=2 http://heinonline.org/HOL/Page?handle=hein.journals/uclr52&div=10&g_sent=1&collection=journals#103 http://heinonline.org/HOL/Page?handle=hein.journals/uclr52&d... But if you want a more casual treatment that explains it (and all the associated issues like why bonds and stocks and debt contracts even exist), I really recommend The Ascent of Money by Niall Ferguson.