Abstract Rausser 9618133 There is compelling evidence that indicates that when liability for accidents is imposed on hazardous industries, usually with the aim of inducing more responsible behavior on the part of its firms, those industries respond to the liability by restructuring. Large firms that previously integrated hazardous processes with their other operations suddenly decide to segregate these processes into dedicated subsidiaries in order to shield their other assets from any liability in case of accidents. Alternatively, they may abandon the hazardous processes altogether and instead purchase required inputs from external suppliers. Both the subsidiaries and outside suppliers are typically undercapitalized: they fully expect to go bankrupt if and when an accident occurs, but gamble on earning sufficient revenues until that time to make the operation profitable overall. The existing literature on hazardous-industry restructuring to avoid liability for accidents treat as fixed many of the variables that informal discussion identifies as critical. This research aims to build a rigorous economic model of a hazardous industry, taking explicit account of firms' incentives to exploit means of avoiding liability through bankruptcy. Key features of the model are tested using data on the trucking industry from the Motor Carrier Management and Information System database maintained by the Federal Highway Administration. The model will also be used to evaluate alternative policy measures designed to force firms to take responsibility for the harm they generate and take appropriate precautionary measures. ***
