Document Type

Article

Publication Title

Washington University Law Review

Volume

103

Publication Date

2026

Keywords

Resilience, Supply Chains, Law and Economics, Business Law, Contracts, Antitrust, Bankruptcy, Corporate Law, Competition Law, Tort Law

Abstract

The field of law and economics has long studied externalities, the costs and benefits actors create and yet fail to internalize. But scholars have largely overlooked a set of externalities that lead firms across the economy to systematically underinvest in resilience, with macroeconomically harmful consequences. In this Article, we address this gap with a theory of the law and economics of resilience, by which we mean the ability of markets to reliably and optimally meet demand for goods and services without extreme price fluctuations. 

We argue that corporate resilience is determined by a conflict between two basic forces: the resilience externality, which arises because firms do not adequately appropriate the benefits their resilience provides others, and the business-stealing externality, which results from the fact that firms do not fully bear the costs their resilience has on total market output. Available evidence suggests that the resilience externality will tend to dominate, leading firms to underinvest in resilience, especially in markets featuring bottleneck products, weak competition, high demand variability, and large benefits of product diversity.

We then illustrate the usefulness of the framework by analyzing the interaction between law and resilience across major domains of business law: tort, contract, antitrust, bankruptcy, and corporate law. In each area, we recommend targeted interventions that would mitigate the resilience externality. We also identify a set of existing legal regimes that are dedicated to promoting resilience, which we dub “resilience regulation.” We evaluate the costs and benefits of pursuing resilience through dedicated, often industry-specific regulation versus through general-purpose business law. Both approaches will be needed to mitigate the supply chain crises caused by war, pandemics, and climate change.

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