H. MANNE, INSIDER TRADING AND THE STOCK MARKET, supra note I, at 1-2 (popular attitudes towards corporate morality did not until recently condemn insider trading); Wang, supra note 1, at 1245 (reasons why businessmen might not consider insider trading immoral). This general belief does not extend to specialized areas such as law firms or corporate printers.

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Limited liability is a fundamental principle of corporate law. Yet liability has never been absolutely limited. Courts occasionally allow creditors to "pierce the corporate veil," which means that shareholders must satisfy creditors' claims. "Piercing" seems to happen freakishly. Like lightning, it is rare, severe, and unprincipled. There is a consensus that the whole area of limited liability, and conversely of piercing the corporate veil, is among the most confusing in corporate law. 1 We argue to the contrary that economic analysis-in particular the theory of the firm and the economics of insuranceexplains the legal treatment of limited liability. Both the rules and the exceptions serve valuable functions. I. INTRODUCTION It may be helpful to recall what limited liability is. The liability of "the corporation" is limited by the fact that the corporation is not real. It is no more than a name for a complex set of contracts among managers, workers, and contributors of capital. It has no existence independent of these relations. The rule of limited liabilt Judge, United States Court of Appeals for the Seventh Circuit; Lee and Brena Freeman Professor of Law, University of Chicago.

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