Secrecy and Safety
AbstractWe provide a model showing that the use of confidential settlement as a strategy for a firm facing tort litigation leads to lower average safety of products sold than would occur if the firm were committed to openness. A rational risk-neutral consumer's response in a market, wherein a firm engages in confidential settlements, may be to reduce demand. A firm committed to openness incurs higher liability and R&D costs, though product demand is not diminished. We identify conditions such that, if the cost of credible auditing (to verify openness) is low enough, a firm prefers to eschew confidentiality.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 95 (2005)
Issue (Month): 4 (September)
Other versions of this item:
- Jennifer F. Reinganum & Andrew F. Daughety, 2004. "Secrecy and Safety," Econometric Society 2004 North American Summer Meetings 53, Econometric Society.
- Andrew F. Daughety & Jennifer F. Reinganum, 2003. "Secrecy and Safety," Vanderbilt University Department of Economics Working Papers 0317, Vanderbilt University Department of Economics, revised Sep 2003.
- Andrew Daughety & Jennifer Reinganum, . "Secrecy and Safety," American Law & Economics Association Annual Meetings 1039, American Law & Economics Association.
- K0 - Law and Economics - - General
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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