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A note on the optimality of (even more) incomplete strict liability

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  • Baumann, Florian
  • Friehe, Tim
  • Grechenig, Kristoffel

Abstract

This paper starts from the premise that liability is incomplete and establishes that firms may nevertheless invest excessively in care. This may justify a (further) reduction in the level of liability from a social standpoint, thereby arguing against seeking to approach full compensation as close as possible. In our framework, firms are liable under product liability, but also invest in care to prevent consumers' switching to competitors. Affecting the partition of consumers by means of care-taking is not desirable from a social standpoint. Consequently, it may be optimal to reduce liability below a given level of incomplete compensation in order to adjust firms' care incentives.

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Bibliographic Info

Article provided by Elsevier in its journal International Review of Law and Economics.

Volume (Year): 31 (2011)
Issue (Month): 2 (June)
Pages: 77-82

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Handle: RePEc:eee:irlaec:v:31:y:2011:i:2:p:77-82

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Web page: http://www.elsevier.com/locate/irle

Related research

Keywords: Tort law Product liability Care level Incomplete compensation Market forces;

References

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Citations

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Cited by:
  1. Baumann, Florian & Friehe, Tim, 2012. "Optimal damages multipliers in oligopolistic markets," DICE Discussion Papers 80, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  2. Sandrine SPAETER & Julien JACOB, 2014. "Large-scale risks and technological change: What about limited liability?," Working Papers of BETA 2014-10, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  3. Julien Jacob, 2011. "Innovation and diffusion in risky industries under liability law: the case of “double-impact” innovations," Working Papers of BETA 2011-24, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.

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