Creating Deeper Pockets to Resolve Judgement-Proof Problems

Abstract

We propose a mechanism that can help to create deeper pockets in order to resolve judgment-proof problems. These problems arise when a producer has insufficient wealth to compensate victims for the damages that may arise from his activities. The mechanism we propose allocates production opportunities among producers according to their relative wealth levels. This mechanism can eliminate all potential losses due to widely-dispersed wealth, even when actual wealth levels are known only to producers. We also show that deep pockets are neither necessary nor sufficient for vicarious liability to enhance social welfare.

JEL Classification: K41