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RISK, INFORMATIONAL ASYMMETRY AND PRODUCT LIABILITY: An Enquiry Into Conflicting Objectives

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Author Info
Ram Singh

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Abstract

Risky products inflict two costs on society; the accident and the insurance costs. The expansion in the scope of product liability since the late 1970s has increased the cost of third-party liability insurance. However, the economic analysis has, traditionally, focused on only the accident costs. Some recent works suggests a strict trade-off between minimization of the accident costs and the insurance costs. In this paper, we extend the analysis by considering both types of costs. An efficiency characterization of product liability rules is provided by assuming informational asymmetry about the risk. We show that it is possible to achieve efficiency with respect to the insurance costs as well as the care levels. Copyright 2009 The Author. Journal compilation 2009 Blackwell Publishing Asia Pty Ltd

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0106.2009.00437.x
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Publisher Info
Article provided by Blackwell Publishing in its journal Pacific Economic Review.

Volume (Year): 14 (2009)
Issue (Month): 1 (02)
Pages: 89-112
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Handle: RePEc:bla:pacecr:v:14:y:2009:i:1:p:89-112

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  1. Sunding, David L. & Zilberman, David, 1998. "Allocating Product Liability in a Multimarket Setting," International Review of Law and Economics, Elsevier, vol. 18(1), pages 1-11, March. [Downloadable!] (restricted)
  2. Jones, Philip & Hudson, John, 1996. "Signalling product quality: When is price relevant?," Journal of Economic Behavior & Organization, Elsevier, vol. 30(2), pages 257-266, August. [Downloadable!] (restricted)
  3. Hamilton, Stephen F., 1998. "Taxation, Fines, And Producer Liability Rules: Efficiency And Market Structure Implications," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20928, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
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  4. John Kambhu, 1982. "Optimal Product Quality under Asymmetric Information and Moral Hazard," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 483-492, Autumn. [Downloadable!] (restricted)
  5. Emons, Winand & Sobel, Joel, 1991. "On the Effectiveness of Liability Rules when Agents Are Not Identical," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 375-90, April. [Downloadable!] (restricted)
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  6. Beales, Howard & Craswell, Richard & Salop, Steven C, 1981. "The Efficient Regulation of Consumer Information," Journal of Law & Economics, University of Chicago Press, vol. 24(3), pages 491-539, December.
  7. Emons,Winand, 1988. "Efficient liability rules for an economy," Discussion Paper Serie A 213, University of Bonn, Germany.
  8. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Spence, A Michael, 1977. "Consumer Misperceptions, Product Failure and Producer Liability," Review of Economic Studies, Blackwell Publishing, vol. 44(3), pages 561-72, October. [Downloadable!] (restricted)
  10. Edward E. Schlee, 1996. "The Value of Information About Product Quality," RAND Journal of Economics, The RAND Corporation, vol. 27(4), pages 803-815, Winter. [Downloadable!] (restricted)
  11. Bagwell, Kyle & Riordan, Michael H, 1991. "High and Declining Prices Signal Product Quality," American Economic Review, American Economic Association, vol. 81(1), pages 224-39, March. [Downloadable!] (restricted)
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  12. Doughety, Andrew F & Reinganum, Jennifer F, 1997. "Everybody Out of the Pool: Products Liability, Punitive Damages, and Competition," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(2), pages 410-32, October.
  13. Marino, Anthony M., 1988. "Products liability and scale effects in a long-run competitive equilibrium," International Review of Law and Economics, Elsevier, vol. 8(1), pages 97-107, June. [Downloadable!] (restricted)
  14. Geistfeld, Mark, 1995. "Manufacturer moral hazard and the Tort-contract issue in products liability," International Review of Law and Economics, Elsevier, vol. 15(3), pages 241-257, September. [Downloadable!] (restricted)
  15. Schwartz, Alan & Wilde, Louis L, 1985. "Product Quality and Imperfect Information," Review of Economic Studies, Blackwell Publishing, vol. 52(2), pages 251-62, April. [Downloadable!] (restricted)
  16. Marilyn J. Simon, 1981. "Imperfect Information, Costly Litigation, and Product Quality," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 171-184, Spring.
  17. Walter Y. Oi, 1973. "The Economics of Product Safety," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 3-28, Spring. [Downloadable!] (restricted)
  18. Ram Singh, 2003. "Efficiency of 'Simple' Liability Rules When Courts Make Erroneous Estimation of the Damage," European Journal of Law and Economics, Springer, vol. 16(1), pages 39-58, July. [Downloadable!] (restricted)
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