Small firms and limited liability
Freedman questions the easy access of small owner-managed or closely held firms to the
privilege of limited liability.
1. Does limited liability allocate risk to those most capable of bearing it?
2
Does it result in optimal levels of risk taking ensuring that ventures with net
positive value to society, but not others, are undertaken?
2. Does it reduce transaction and monitoring costs?
Values that are not quantifiable may be hidden under the “cloak of efficiency”. However,
even if not quantifiable, moral values of society must be considered when public policy is
introduced or examined for “efficiency”. (p. 319).
There may come a point at which we are prepared to choose such principles as fairness
over and above profit maximization: “Efficiency solutions are not always just solutions.
The policy maker is concerned not only with the optimal allocation of resources but also
with the appropriate distribution as determined by moral and political criteria…..”
(A. Ogus, Economics, Liberty, and the Common Law, (1980) 15 Journal of the Society of
Public Teachers of Law, 42); also N. Duxbury, Patterns of American Jurisprudence
(Oxford, Clarendon Press, 1995) pp. 394-419.