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

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  • Ram Singh

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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Bibliographic Info

Article provided by Wiley Blackwell 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. A. Mitchell Polinsky, 1980. "Strict Liability versus Negligence in a Market Setting," NBER Working Papers 0420, National Bureau of Economic Research, Inc.
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  17. 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.
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  21. 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.
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  23. 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.
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