Inducing corporate compliance: A compound corporate liability regime

Corporate liability regimes have two major social goals: (i) inducing corporations to internalize all social ramifications of their activity; and (ii) inducing corporations to prevent, deter, and report their employee misconduct. The scholarly polemic has shown that none of the liability regimes recognized thus far in the literature efficiently satisfies both social goals. Following a Law and Economics approach, this paper develops an innovative regime that may comprise an optimal corporate liability framework in most settings. The Compound Corporate Liability Regime developed in this paper is a two-layer strict liability regime. Under this regime, corporations that self-report their employee misconduct incur a sanction that is reduced by the variable enforcement costs saved due to their self-reporting. Such a liability framework aligns social and corporations’ interests, and thereby satisfies both social goals of corporate liability regimes.