Posted by Frank Partnoy, University of San Diego, on Thursday, April 13, 2017
Editor's Note: Frank Partnoy is George E. Barrett Professor of Law and Finance and Director of the Center for Corporate and Securities Law at University of San Diego School of Law. This post is based on his recent article, forthcoming in the Seattle University Law Review.
Here is a surprisingly difficult yet largely unexamined capital budgeting problem: imagine a corporate decision that will generate $5 million of profit today but result in the loss of one human life in ten years. This example is not abstract: corporations in a range of businesses engage in decisions and oversight that affect risk to human life: consider autonomous cars, airbags, pharmaceuticals, medical devices, and many categories of consumer products. Historically, regulation and tort liability have addressed corporate liability for the loss of human life, but the corporate governance literature, and corporate law, have had little to say.