Hazardous-industry restructuring to avoid liability for accidents

Motivated by statistical and anecdotal evidence of hazardous-industry restructuring to avoid liability for accidents, this paper investigates how allowing for such restructuring affects the standard analysis of the judgment proof problem. It is shown that restructuring may either enhance or diminish the initial effect of imposing liability on accident rates and welfare. If the restructuring is towards smaller firms, the overall welfare effect of imposing liability may be negative. If it is towards larger firms, the overall welfare effect is unambiguously positive, but may paradoxically be enhanced if the restructuring can be prevented.